There are two types of Inquiries.

When you check your own credit reports, whether your annual, no-cost ones, or your FICO reports with your actual FICO scores, or some reports you get with a monitoring service you’re enrolled in, FICO says it NEVER counts against the consumer to obtain their own credit reports.  It is a SOFT Inquiry.

Other SOFT Inquiries occur when a company you already have an account with does periodic monitoring of your credit reports, or when a company wants to send you a “pre-approved” offer, or when a prospective employer checks your credit as part of the job application process.  Soft inquiries do not count against your score.

The reason checking your own credit does not count against you is because you are NOT applying for a loan.  Whenever you sign a loan application, or approve one by giving your name, date of birth and social security number, it is considered a HARD Inquiry and will count against your scores.  These hard inquiries stay on your reports for two years and are included in the score for that time.  They can count from 1-12 points each.

NOTE: Try to limit your credit inquiries to less than (6) annually.  According to the FICO company, lots of inquiries means greater risk: people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their report. 

There is some consideration for real estate/mortgage and auto rate shopping.  The FICO scoring formula takes into account that most lenders “shop the loan” to get multiple possibilities for their customer to get qualified.  You can learn more about inquiries and rate shopping here.

NOTE: Even if the lender’s credit report only shows 6 or 12 months worth of inquiries on it, FICO says they stay on for two years and are included in the FICO scoring formula that entire time.  So even if your lender says “don’t worry, it will come off in a month or in 6 months”, that does not necessarily make it so. 

WHAT TO DO
Don’t make excessive loan or credit card applications.

When you do sign an authorization paper for someone to pull your credit, write on that paper that you are only authorizing ONE credit check on that date, and none in the future.  Get a copy of that paper for your records.

When shopping for a mortgage or auto loan, write out that you are authorizing credit checks for a two week period and list those dates.  Example: I authorize ABC company to check my credit report from June 1, 2009 until June 15, 2009 and no other dates.

Dispute unauthorized inquiries with the company reporting them and with the three credit bureaus.

Contact us for individual credit consulting services and to schedule your group presentation for Credit 101.

We recommend that everyone check their credit reports regularly to look for errors.  If you are considering a major purchase or refinance, it is a good idea to check your FICO scores, too.  Remember, about 90% of lenders use the FICO scoring formula so don't spend your money on those other scores that are so heavily advertised all over the place.

You will be able to log in and review your reports for 30 days.  We suggest that you print them out so you can make any notations on it of things that need corrected.  Click here for more info on how to correct credit report errors.

If someone files BK in June, it typically takes a few months for the process to be completed and discharged, if it's a Chapter 7; or for the repayment plan to be confirmed, if it's a Chapter 13.

A common error that we see on credit reports is that the creditors, the companies that the consumer has accounts with, report 30, 60 and even 90 day late payments to the credit bureaus after the BK was filed.  Because the BK filing results in an automatic "stay" (stop) of most collection actions against the consumer, the last payment that could be listed on a credit report would be in the month the filing took place.  So the person who filed in June, should have no further late payments  after June listed on accounts included in the BK.

NOTE: In a Chapter 13 repayment plan, late payments made to accounts after the plan is in effect can result in marks on the credit report as well as violations of the BK agreement.

WHAT TO LOOK FOR
A previous article lists steps to take after you file bankruptcy to be sure your credit report is accurate.  This is important to rebuild a positive credit rating as quickly as possible.

The specifics that are talked about in this article are late payments after the BK filing date.

1) Get a no-cost copy of your credit report.  It doesn't matter which bureau it's from.  Follow this link to get the free report you are entitled to annually.

2) Use a colored highlighter to mark ALL late payments, and all accounts listed as "Included in Bankruptcy", and any 'Charge Off' or collection accounts.

3) Have a copy of your official BK papers showing which accounts are included in the BK.  Check the list against the credit report to be sure it matches and no accounts on the credit report were missed.

4) Now check those same accounts to be sure that there are no late payments listed in any month after the BK filing date.  If so, highlight them with a different color to indicate an error that you will dispute with the credit bureaus.

5) Check those same accounts again to confirm that none of them were listed as a Charge Off after the BK filing date.  Remember, this is very common and it adds more negative hits to your credit rating.  Again, highlight with a different color to indicate an error.

6) Look at any accounts on the report listed as a collection.  If they were in the BK, they should have zero balance.  By the way, that goes for ALL accounts listed in a Chapter 7.  Chapter 13 accounts will continue to have balances throughout the repayment plan.

If there is a collection item recently added to the credit file for an account included in the BK, mark it as an error.  You will want to contact that company directly as the first step to get that item corrected on your credit report.

7) Write dispute letters to ALL THREE credit bureaus, even though you only reviewed one report.  Chances are that most accounts are listed on all three and you will then get an updated report from all of them to do another accuracy check. 

Include copies of your discharge paper or repayment plan along with the schedule showing which accounts were included in the BK.  Request that the late payments and/or charge off designations added after the filing date be removed from your file.  You may need to send letters to the companies that are reporting it, too.  Keep copies of everything for your records.

7) Check your reports again in 3-4 months.  Do the same process again to be certain your credit file is accurate.  Then follow a smart, effective Credit Building Plan to regain your credit rating.  Even though the BK will stay on your credit report for up to ten years, most people re-establish their credit within 2-3 years.

You can contact us for information about our services that are specific to those in bankruptcy.  Our clients appreciate the step-by-step plan to start fresh and do their credit rebuilding well.

WHAT IS A CHARGE OFF?
When an account has not been paid for a period of time, the company can determine that it is uncollectible and writes it off as “bad debt”.  This falls under standard accounting practices and usually happens when the account has been delinquent for a period of six successive months.  It is sometimes reported on the credit report as “Profit and Loss” or “Charged off to P & L”  which come from common accounting terms.

A Charge Off is a negative event to the scoring formula and usually has a severe impact on credit scores.  Additionally, the late payments attached to the Charge Off often have a significant impact on credit as Payment History is the number one factor in scores.

HOW IT’S REPORTED
Typically, there will be several late payments listed on the credit report with an account that has been charged-off.  There will be five or six months’ worth, getting progressively more delinquent as the time goes by: a 30 day late, then a 60 day late, then a 90 day late, etc. 

NOTE: The company can report late payments after the charge off because the unpaid account is technically overdue.

There is usually a money balance due on the account and it can continue to grow each month if the company charges late fees and overlimit fees.  Often a Past Due Balance is reported along with the regular account balance.  A Past Due Balance is an additional negative item counted against the scores.

TO COLLECTIONS
After a period of time, a company may sell the account to a collection agency.  If the collection agency chooses to pay the credit bureaus as a monthly subscriber, they can then report the account on the credit report, too.  The Date Opened should be when it went to collections.  The Date of Last Delinquency should be the last late payment date that the original creditor/company reported. 

HOW LONG IT STAYS ON CREDIT REPORTS
According to the Fair Credit Reporting Act (FCRA), the charge off and its related late payments can stay on for seven years plus six months from the date of first delinquency that led to the charge off.  So if the first missed payment was in January and no payments were made ever again, each month would have a subsequent late payment with the charge off status likely reported in June (six months later).  January of that year would be when the 7 1/2 year reporting period starts because it was the first delinquency in the succession that led to the charge off.

NOTE: Any late payments on the account in earlier years, NOT in succession to the charge off, should be removed 7 years after the date it occured.

COMMON ERRORS
When the charged off account is transferred to collections, the account balance should only show up on ONE account, the most recent one.  If both the original company AND the collection agency are reporting a balance on the credit report, that’s an error.  It can only be listed on the most recent account, in this case – the collection agency. 

After a period of unsuccessful collection attempts, one collection agency may sell it to a different collection agency.  Again, only ONE of them can report the balance on the credit report.  Sometimes we see the same account listed by four or five different collection agencies on one credit report.  If all of them are still showing a balance due, all but the most recent owner of the account are reporting inaccurately.

NOTE: The Statute of Limitations on credit reporting is NOT the same as the Statute of Limitations on debt collection, which varies from state to state.

Late payments should not continue to accumulate on the original account after it has been transferred to the collection agency.  It is no longer their account, it is no longer overdue to them.  NO late payments on original account after it goes to collections.

Collection accounts reporting AFTER the 7 1/2 year reporting limit is a common error on credit reports.  Often the collection agency dates listed under Date Account Opened are much more recent than the delinquencies on the original account that the collection is for.  When the collection agency does not list the Date of Last Delinquency OR changes it to a more recent date, the account looks much newer than it is and stays on credit reports longer.

NOTE: If there is a collection account on the credit report for Sears and there is not an original account reported by Sears anywhere on the report, chances are the collection is past the reporting time limits.  When the original account can no longer be reported, it usually means the related collection accounts can’t be reported either.

FINAL THOUGHTS
A Charge Off is a negative item, but it does not mean your credit rating won’t recover.  Minimizing the negative impact by assuring it is reporting accurately is something you CAN do to help your Financial Fitness. 

Your credit file is created when companies that you do business with report their customers’ account information to the credit bureaus.  They are “subscribers” and pay the bureaus to report each month.  Most major national companies report to all three; however, smaller companies such as collection agencies may not want to pay all three credit bureaus so they only report to one or two.  This is one reason for the differences in your credit files between the three bureaus.

There is no federal law stating that companies must report to the credit bureaus.  Because so many companies DO report, the Fair Credit Reporting Act (FCRA) spells out the length of time different types of information can stay on your report.

1) ACCOUNTS IN GOOD STANDING – 10 Years

Closed accounts that were never late or had any other derogatory information reported can stay on your credit report for up to ten years.  They help your score.

2) LATE PAYMENTS – 7 years

When a monthly payment is overdue by more than 30 days, it will usually shows up on the credit report.  These late payments of 30, 60, and 90+ days can stay on the credit file for seven years from the time they happened.

3) CHARGE OFFS – 7.5 years

When a company lists an account as a “charge off” or “loss to profit and loss” it can stay on your credit for seven years plus six months from the date of the first delinquency that led to the charge off.

4) COLLECTIONS – 7 years

The seven year reporting period starts with the original delinquency with the original creditor, NOT the “date opened” listed by the collection agency on the credit report.  The collection accounts often look newer with more recent dates; therefore it is important to know exactly what the collection item is for and when the original charge occurred.

5) JUDGMENTS – 7 years

The FCRA states that civil judgments can stay on for seven years from the filing date or until the governing statute of limitations has expired, whichever is longer.  Check information for your state here.

6) TAX LIENS – 7 years if paid

Unpaid tax liens can stay on the credit reports indefinitely.  Paid tax liens stay on for seven years from the date of payment.

7) BANKRUPTCY – 10 years

Chapter 7 and 11 bankruptcies can stay on for ten years from the date filed.

NOTE: Accounts included in the bankruptcy stay on for seven years from the date filed.  Late payments listed for those accounts will still come off at their own seven-year mark, even if the account was included in bankruptcy.

Chapter 12 and 13 bankruptcies that are completed and discharged can stay on for seven years from the date filed.   Dismissed, or unfinished, Chapter 12 or 13 cases can stay on the credit file for ten years from the date filed.

WHAT TO DO

If your credit report contains information that is past the reporting period, contact all three of the credit bureaus to get it removed and corrected.  You are well within your consumer rights to do so.  Be sure to follow up, making certain that your report is accurate and that no expired items remain.

Learning about your credit and being proactive in building a positive credit rating is an important step to healthy Financial Fitness for your future.   Contact us today for your in-depth Credit Analysis to be sure your credit report is as accurate as possible.

And they do what every single person in America can do for themselves.  For free.

As we always emphasize to our clients, our seminar participants, and even our families, monitor your credit regularly!  It doesn’t cost anything but your time when you use the free annual credit reports you are entitled to.   Schedule it in your planner or on the family calendar.  Everyone gets three reports per year; check one from each credit bureau every four months for year-round monitoring.

LifeLock puts a fraud alert on each of their clients’ credit reports.  Fraud alerts are intended to be used by consumers that have experienced identity theft or whose personal information has been compromised.  Theoretically, a consumer with a fraud alert would be notified by any company that has been asked to lend that consumer money or open a credit account.  The lending company purchases the credit report to determine if they will or will not grant the loan and they see that there is a fraud alert which requires them to contact the person who the credit report is about and verify that it is really them.

Does it work that way?  We can only hope so as reports and statistics about this are few and far between.  The financial industry states that it could be very inconvenient for the consumer who has to wait to be approved for their loan due to the restrictions of the fraud alert.

One concern is that the credit bureaus, who have to pay for the time and expense to place the fraud alert on the credit reports, may enact some future rule or limitation that puts a stop to pre-emptive, continuous fraud alerts such as those that LifeLock is doing.  In fact, Experian, one of the three major credit reporting agencies (bureaus), filed a suit against LifeLock in February in California claiming that the company violates the Fair Credit Reporting Act by placing fraud alerts on behalf of consumers and then renewing them in perpetuity.

Another lawsuit has been filed in Arizona by a Maricopa County resident as a proposed class-action lawsuit claiming that the company is not legally allowed to perform the service it offers and the million-dollar guarantee they offer has so many limitations it is worthless. 

LifeLock does have an additional service that their adult, annual members can purchase for $25 a year per child under 16 years old.  They will check the child’s credit reports and place fraud alerts if warranted.  As we mentioned on March 21, 2008, you can check for a credit report under your child’s name and social security number with the free, annual credit reports.  If they are not available, that is usually a good sign that their information has not been misused.  Mark it on the calendar and do this yourself every six months.

BOTTOM LINE: Save your money, be pro-active and commit to including credit report monitoring as part of your financial fitness routine.

Be aware that the credit bureau replies, usually a complete or abbreviated version of your credit report, WILL NOT BE FORWARDED.  If you move within a month or so of writing to the credit bureaus, you may want to notify them via mail or online that you have a different address.  Otherwise, you may not receive the updated information about your credit file.  OR someone else who now lives at your old address has access to your personal and financial information.

BOTTOM LINE: Keep track of the dates you contact the credit bureaus to be sure that they do their job in a timely manner as required by law and to insure that your information is safe.