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How long does a bankruptcy stay on your credit report?
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Seven or ten years. It just depends on the chapter of bankruptcy you declare.
Experian’s policy is to delete Chapter 13 bankruptcy from your credit report after
seven years. Under Chapter 13 bankruptcy, you are required to repay at least a
portion of your debt, so it is deleted more quickly. Chapter seven bankruptcy
remains on your Experian credit report for 10 years because you do not repay any
of the debt you owe. The bankruptcy information is deleted automatically either
seven years or 10 years from the filing date. You don’t need to do anything to have
it removed. These are Experian policies. The Fair Credit Reporting Act (FCRA) allows
all bankruptcies to remain for up to 10 years, so other credit reporting agencies may
allow chapter 13 filings to remain longer.
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If I plan to purchase my first home in the next 18 months, what will make me a
better credit risk to the mortgage companies – keeping lines of credit open but
inactive or requesting they be closed and make sure it is reported that I made
the request?
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Generally, it is better to leave accounts open if you have zero balances than it is
to close them, especially if there is no negative activity associated with the
accounts. The available, unused credit results in a lower balance to limit ratio –
divide your total balances by your total limits. A low balance-to-limit ratio
indicates you use your available credit wisely, which is important to lenders and
plays a significant part in credit risk scores. For example, if you have two cards
with $750 limits and a balance of $500 on one, you have a balance to limit ratio
of 33 percent. If you close the account with a zero balance, you now have a
balance-to-limit ratio of 66 percent, and it suddenly looks like you may be
overusing your credit. There is always some risk of a person using all of the
available balance very quickly and getting in big credit trouble, but demonstrating
good credit management with low balances as compared to limits usually outweighs that
risk. Who requests that an account be closed has little or no impact on credit risk
scores. People “surf” for better rates so often today that credit risk scores take
little or no notice of who closed the account or why. I often hear the advice to
close the accounts, but it’s usually advice that doesn’t take balance-to-limit
ratios into account.
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If I pay off the negative items on my credit report, can they be changed to
positive or be removed entirely? If not, what is the sense of paying something
off if its still going to reflect as a negative item?
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The account will be changed to show that it is now positive. However, your credit
report reflects your payment history, so the fact that there was negative activity in
the past won’t be deleted immediately. Negative information, such as a late payment,
remains on your credit report for seven years. Bankruptcy can stay for up to 10 years,
and unpaid tax liens can last 15 years. Eventually the negative information will be
deleted, and you will have a perfect credit history. Because negative information
becomes less important the further in the past it occurred, paying off the negative
items will help you get credit more quickly. Lenders look for patterns of credit
behavior. Paying off the negative items and keeping your payments current shows
lenders you have changed your credit management habits, even though some negative
activity might have occurred in the past. Not paying the debts you owe tells lenders
they shouldn’t loan you money because you won’t pay them back. The bottom line is
that if the account is negative now, creditors will probably reject your application
immediately. If the negative information occurred several months or years ago, it
will be less significant to the lender and you have a better chance of being approved.
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My credit score is 577. Why is it so low? Two months ago it was 700. The only thing
I can think of that has changed is an additional $20,000 on credit cards. But I
have been paying them on time regularly.
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I can't tell you what the number means. That depends on the credit risk scoring
system used and the lender using it. I can tell you that sudden, large increases in
credit card balances alarm lenders and seriously impact credit risk scores. An
increase of $20,000 in two months constitutes a very large, very rapid balance
increase. Rapid increases in credit card balances are proven indicators of lending
risk. It is a trait linked to people who are, or are about to have debt repayment
problems. For example, people often will use all of their remaining balances and
then file for bankruptcy, leaving lenders to absorb the loss. This may not be your
case, but credit scoring systems look at behaviors as they compare to large groups
and how others in that group with similar credit patterns have performed in the past.
Paying the bills on time is offset by the balance increase. You have been paying the
bills on time, but you don't say if you are just paying the minimum due. If so, you
are in danger of never being able to repay the debt and the finance charges unless
you have a definite plan complete repayment. You are at risk of sinking further into
trouble. At this point, you need to minimize your credit card use, or stop using them
altogether, and pay down the existing balances. When the balances are reduced and it
is clear you have control of your debt, credit risk scores will improve.
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How do I separate my business credit from my personal credit?
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If you have used your personal credit to secure your business debt, it will be
difficult to completely separate the two. Using credit cards, personal loans,
or home equity loans to finance your business links your person credit with the
business. You have secured the business debt with your personal finances, which
means if the business fails, you must repay the outstanding business debts from
your personal assets. That could mean you have to surrender your house if you
used a home equity loan. The only way to now separate your business and personal
debts is to repay the loans used for the business. In the meantime, legally
incorporate the business. You will need to speak to an attorney to find out what
must be done in that regard. Once the debts are paid, you can obtain new small
business loans tied only to your incorporated business, not to you personally.
A new business credit report will be established that will show the business's
debts and repayment history, much like your personal credit history.
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A few years ago, when I lived in Indiana, I cosigned a mortgage for my brother.
Since then he has had trouble keeping up with his mortgage and even came close
to foreclosure. As a result, my credit has been destroyed and I didn't even
live there or know that there were any real problems. Is there anything I can
do to designate that I only cosigned the loan? I never lived in the residence
nor made any payments.
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Cosigning establishes a legal contract with the lender that says if the person
you are cosigning doesn't pay the debt, you will. It's not something to be taken
lightly. When you only cosigned, you only agreed to repay the debt if your brother
didn't. That is why cosigned accounts appear on the credit report of both the
primary account holder, in this case your brother, and on the cosigner's credit
report, which is yours. After cosigning, it is your responsibility to make sure
the debt is repaid as agreed, on time, whether you lived in the house or not.
The account entry in your credit history already indicates you are the cosigner.
The history of the account is reflected, as well. Your only option is to repay
the debt, or bring the account current and then make sure it is repaid on time
from now on. The account status will show it is now current but was late. In time,
the late payments will be deleted and your credit history will be completely
positive again.
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