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Credit reports explained

I have a copy of my credit report. What should I be looking for?
Check for late payments and credit cards you no longer use that you never closed out. Most importantly, look for any incorrect information on your credit report.

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If you find a mistake -- an account that isn't yours or a disputed amount -- you'll need to fill out the form that comes with the report, or follow the instructions on the explanatory sheet.

"You're guilty until proven innocent in the world of FICOs," says Michael Feldman, a co-founder of "It's not always your fault, and even if it is, usually there's a very good explanation. Once you're in the mortgage process, you can't get it removed. You have to explain it to the bank underwriter. If you can't prove it, it results in a lower score, a higher rate, or a decline."

How can I cleanup my credit report?
The general guidelines for cleaning up your credit report, says Feldman, include paying your bills on time, limiting the amount of outstanding credit, and resolving outstanding bills.

"I see this all the time," Feldman says. " A person has a $100 doctor bill and they say, 'I'm not paying it out of principle.' I say, 'Throw your principles out the window, it's going to cost you thousands on your mortgage.' "

Limiting the amount of outstanding credit is important even if you've never been charged a late fee, says Victor Benoun, a mortgage broker and author of the book, Your Castle, No Hassle.

"We think if we pay all our bills we should have perfect credit," he says. "That's not always the case. Say you have 10 credit cards and they all have credit of $5,000," he says. "If you have the maximum on all of them, even if you pay them all perfectly, you'll have a lower score than someone with lower balances or fewer cards."

That's not always easy, Benoun admits, in a market in which consumers are encouraged to use credit for even things such as gas and groceries. If you're shopping for a mortgage, though, how you handle your money makes a real difference in the kind of loan package you can qualify for.

Once a judgment has been paid, will it be automatically removed from a credit report?
Heck, no. According to Don Taylor, one of's financial experts, "The judgment will remain on your credit report for seven years from the filing date."

He says that according to Experian's Web site, "Federal law specifies how long negative information may remain on your credit report. To prevent past errors from haunting you forever, most negative information must be erased after seven years. This includes late payments, accounts that the credit grantor turned over to a collection agency and judgments filed against you in court -- even if you later paid the account in full."

Is it possible to insert an explanation to a credit report?
There are two types of comments you can put on your credit report, according to Don Taylor, a financial expert. One is an explanatory paragraph that tells prospective lenders and employers about why you had trouble managing your credit in the past. Lenders are more influenced by your current payment history than they are by your reasons for past difficulties. The statement will stay on your credit report for seven years unless you write in to request that the statement be removed from your credit report.

The second type of consumer comment is a statement of dispute. If the creditor and the consumer can't agree on the consumer's account status, the consumer's statement of dispute and the creditor's statement of the account status will both show up on the credit report. This type of statement is an important consumer right protected by the Fair Credit Reporting Act.



-- Posted: Sept. 11, 2003




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