Most financial institutions will approve or deny loan applications on the basis of information they receive from national and local credit reporting agencies. These CRA’s, as they are commonly known, gather and sell data that show how consistently you’ve paid your bills, whether you have any judgements against you, and whether you’ve filed for bankruptcy in the recent past.
If you’ve paid cash all your life and now want to start building a credit history, you should begin making small purchases on credit from a local business or department store. You may also want to take out a small loan from a credit union or a bank, where you already have a checking or savings account. Be sure to have the store or bank report your loan transaction and payments to the CRA in your area. By paying off small loans, you can establish a credit history that mat help you obtain larger loans in the future.
If you are denied credit based on your credit file report, you have a right to request a copy of that report from the CRA free of charge within 30 days. After 30 days, you must pay a fee to see your credit file. Your local CRA is listed in the yellow pages of the phone book.
If you feel that your credit file is inaccurate, incomplete, or needs to be updated, notify the credit reporting agency immediately. They are required by law to investigate all relevant complaints. All errors must be corrected. Information that cannot be verified must be deleted and incomplete information must be fully explained. At your request, a corrected version of your credit report will be sent to anyone who received your file within the last six months. If you cannot resolve your dispute with a credit reporting agency, you may still file a short statement explaining your side of the story. This statement will then appear on all future credit reports.
If you had credit before under another name or in a different location and it’s not listed in your credit history file, ask the CRA to update this information. If you are divorced or widowed and have used credit accounts listed only in your spouse’s name, have those accounts listed under your name as well. And, if you have the use of a credit account with your spouse, be sure to have the account reported under both your names. Remember, when contacting your creditor or credit bureau, always do it in writing and be sure to retain a copy of what was sent.
If you are striken with sudden illness or loss of job, it may be impossible to pay your bills on time. Contact your creditors at once. You may be able to work out a modified payment plan with them. Don’t wait for your account to be turned over to a collection agency.
If you co-sign a loan, remember you are responsible for repaying the loan. The lending institution need not contact the other person first to collect, since you are co-signers or co-borrowers. If the other person defaults on the loan, besides being liable for repayment of the loan, you may also have to pay the added late charges and any attorney or collection agency fees. If you are unable to pay off the loan, your credit files will reflect the default and seriously damage your chances of obtaining credit in the future.
So, before you co-sign for anyone, make sure you have the resources to cover the loan. Also, consider that even if you are not asked to repay the debt, your liability for the loan may keep you from getting other credit you may want or need.
If you are having trouble obtaining credit or getting approval on a loan because of a bad credit history, ads that promise to “fix” your credit history may sound like the answer to your problems. But, according to law, no one can require a credit bureau to change, erase, or otherwise remove information revealing a poor credit history, if that information is correct. Negative credit information can only be removed by the passage of time. Bankruptcies for example, may appear on credit reports for 10 years. Information such as late payments, repossessions, and liens are usually reported for 7 years. Don’t pay money for something that can’t be done.