The single, most deciding factor in determining whether or not you get that mortgage or that car loan (and how much interest you’ll be paying) is your credit score. For years, the score has been calculated using the same rules but now that’s about to change because Fair Isaac Corp, the private company responsible for calculating your score, is changing those rules.

How will it affect you? Well, that depends on your current credit ranking and your credit habits.

Let’s look at some of the changes.

Types of Credit

Raising your credit scores with the new FICO 2008, you need to have a diverse credit portfolio. A wallet of credit cards won’t be sufficient. You will score points for having a mix of loans, mortgage and auto specially, and revolving accounts like credit cards.

The rationale is lenders need to see you can handle a variety of types of debt before they feel comfortable trusting you with additional money.

Credit Limits

Having credit cards is, therefore, a good idea. However, using them responsibly is a must. Your credit score will go down if you use charge too much of that available credit. If fact, to be safe, you don’t want to maintain a balance of more than 50 or 60% of you credit limit.

Lenders want to make sure you aren’t piling on too much debt. A borrower who already has three or four maxed out credit cards may be sinking themselves into a hole they will have trouble digging out of and lenders don’t want to be part of that experience.

Applying for Credit

In the past, your credit score could be hit pretty hard if you tried applying for credit from many different sources. That looked as if you were just trying to take on as much debt as you could your hands on or were being turned down a lot for being a poor risk.

One of the rule changes, however, is that shopping for credit from multiple sources won’t hurt nearly as bad. It’s still not a great idea to overdo it, but looking for a good deal by applying for the same type of loan, for example, is now acceptable.

Late Payments

FICO used to have no mercy when it came to delinquent accounts. If you were late, especially late more than 90 days, then your score would plummet like it had reached the highest hill on a roller coaster. That’s not necessarily the case anymore.

The new scoring system is a little more forgiving. If you occasionally miss a due date, don’t worry. If you’re 90 days past due on a single account but all of your other accounts are current, then don’t worry. However, if you are frequently late with your payments or are seriously delinquent on multiple accounts, your credit score will drop considerably.

The bottom line is the new FICO scores are meant to ensure responsible credit users get a break when accidents happen. They are also meant to keep people who are already over their heads in debt from getting additional credit from lenders.

You can expect to start seeing these changes reflected in your FICO score slowly throughout 2008 as the new rules are adopted by each of the three credit bureaus.

According to the credit bureaus themselves 76% of the information in a average credit report is wrong. So, how can this be fixed? Most credit report inaccuracies are due to credit bureaus mixing up people’s names, especially if it is a very common name. The first step in fixing any errors on your credit report is to get a copy of your credit report yourself and go through what’s on it. Typically, most creditors such as lenders use what is called a trimerge file. This is one report created from all three of the main credit bureaus and merged together. They are more accurate but there still can have mistakes.

Reading Your Credit Report

The other main problem with credit report errors is the consumer not reading or researching the account. Over my years in the finance and mortgage industries I have seen and read hundreds, if not thousands, of credit reports. Although, some are harder to read than others.

All credit reports follow a basic chart. There is usually a header at the top stating the meaning for each column. A typical heading and entry would look like this:

A typical credit report entry has the following details:

1. Account name (Citibank);
2. Account Number (sometimes these are purposely wrong to protect the account);
3. Date account was opened (Open);
4. Date account was last active (DLA);
5. Credit limit (4500);
6. Information if there were late payments (how often and how late);
7. The current balance;
8. There may be other headings for opening balance and / for a close date.

Most of these headings are self explanatory but the usual mistake in this section can be the dates. For instance an account might be open in June 2007 but open account might not be reported to the bureaus until August 2007. At the end of most credit reports is a list of phone numbers for all of the creditors listed.

How to dispute or correct a Credit Report Error

It is important to go through each entry on your credit report. Once you find a possible error in your credit report, research it yourself a bit further. Each possible mistake has to be handled separately and in a specific way.

Contact each of the creditors in question. Tell them you are disputing the account and ask how to get this fixed. Chances are they will give you the run around or tell you they can’t find the records.

The next step is to contact the three main credit reporting agencies. You will need to send a certified letter to each one of them stating that you are disputing this claim and ask for an investigation.

Next send a certified letter to the creditor. This may be the original creditor or the one who bought the account such as another lender or a collection agency. In this letter you should request that they validate their claim. They will return copies of signed contracts, receipts, and so on, if they return anything at all. According to the Fair Credit Reporting and Dept Collection Practices Act they have 30 days to comply with this request.

If the creditor does not reply by the deadline send another certified letter to the credit agencies stating that this entry is unvalidated and should be removed.

If this error is not fixed or removed from you report you have the right to sue them for violating the Fair Credit Reporting and Dept Collection Practices Act. This can be done on small claims court.

Choosing Your Battle

The above procedure has to be done for every possible error. As this will take time and money it is wise to choose your battle carefully. Disputing claims on your credit report is a good idea if the entry is a large amount; you are being harassed about it by the holder of the account, or an equally important reason.

Although, to the consumer this may seem like a big deal it might be a waste of time and money to dispute things like names misspelled, other names on your credit report (see below) or trying to change dates.

It is important to note that if there are errors on your credit report through no fault of yours there are things you can do. If, however, the entries that are thought to be errors are in fact due to bad credit or not paying accounts only time will fix the issue.

Typically, an item on a credit report will stay on for 7 years. But there are a few things that will stay on longer. Such as:

1. Bankruptcy will stay on for 10 years;
2. An application for a job with a salary of more than $75,000 has no time limit;
3. An application for credit or life insurance worth $150,000 or more has no time limit either;
4. An entry about a lawsuit or a judgment against you can be reported statute of limitations runs out, and
5. An entry if you default on a federally backed student loan

Important Facts About Credit Repair Companies

Businesses in this country contact people everyday about repairing their credit. What they do is they promise, for a fee, to clear up your credit report. Don’t do it. Don’t believe them. These companies may not do anything but just vanish with your money. Some of these places will claim that they can get you a new SSN. This is illegal. They may tell you not to contact any of the credit bureaus yourself or tell you to dispute everything. The bottom line is that these companies may want you to pay a fee up front BEFORE the work is done.

No one can legally remove accurate, positive or negative, information from a credit report. But the law does allow you to dispute an entry and ask for an investigation

Do yourself a favor and save some money, too. Don’t believe these statements. Only time, a conscious effort, and a personal debt repayment plan will improve your credit report.

You can contact the three main credit bureaus at:

1. Equifax (800-685-1111) - www.equifax.com
2. Experian (888-397-3742) - www.experian.com
3. TransUnion (800-316-8800) - www.transunion.com

I am often asked why do I care so much about Credit Reports? Do I eat breath and sleep credit reports? No not really I do have other things I enjoy outside of credit reports and scores.

I would guess the main draw for me is educating consumers on a often misunderstood topic.  I never knew what a credit report was until my mid twenties when I went to buy a car.   I knew you need a good credit score, but even that was a mystery to me.  After that first car buying experience I decided I should learn a little more about the industry and how it all works.

So thats how this little project came about, to help educate people on credit reports and scores.

After working for years in the industry I would say the most important thing you can do as a consumer is to pay your bills on time. Late pays really effect your credit sore, and stay on your report for along time. The next big thing is to not fall into the habit of applying for credit often. This puts a hard inquiry on your credit report, which will hurt your credit score.

Credit worthiness is an awesome tool that regardless of income, social standing, race, sex all consumers can achive, and with that can meet and exceed all kinds of goals. Whether that is to own a home, a car, or multiple homes.

So I guess that is the main reason I care, is to help inform others like myself on ways to improve their credit scores, and to use that credit.

I am also a firm believer in credit monitoring service like the one I have above in the banner. It will give you 24/7 access to all three of your credit reports, and your credit scores. It will also help protect against ID theft, and give you updates as soon as a change happens on your credit report.

Please take the time to go around this site, there is tons of information from credit reports, credit scores, Identity Theft, and many more.