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What is Credit Items Purge the System?


The credit report of a consumer includes open and closed credit accounts for things such as credit cards, mortgages and car loans. It will also show if these accounts have not been settled or are currently in good standing, default or forwarded for collection. These can show up as negative items in your credit report.

This article discusses the following: what negative credit items are; what credit score is; and, credit reports, files and ratings.

What are Negative Credit Items?


Aside from default or unpaid and late payments, negative items that can show in your credit report are tax liens (federal or state), bankruptcies, charge-offs, judgements, late-payments, and credit accounts that have been transferred to a collection agency. Negative items are damaging to your credit score and show future creditors that you might be a risk. Certain items like bankruptcies or defaults can cause more harm than a few late payments. Negative items are added or removed as creditors update the status of your account. If you have a loan that is over 60 days past due, it will show up on your credit as a default. However, if you pay this loan off in full, the default will be removed.
A large percentage of credit reports contain negative items that are inaccurate. The amount of bad data on the report of consumers may reach as much as 70%. Once you get your free report from all three bureaus, you can scan through them and search for anything that is incorrect. If you find an entry that is not accurate, such as a default that was later paid, you can send a dispute letter to the credit bureau with the bad information. Once the credit bureau receives that dispute letter, they have 30 days to contact the creditor in question and verify the negative item. If they cannot verify it, then the item must be removed.

What is Credit Score?


Your credit score is an appraisal of your financial health at a given time. It points out
the risks you represent to lenders. It is also used by lenders or credit card companies to determine whether or not to give you credit when you apply. Your score is obtained from one or both of the credit bureaus, Equifax (www.equifax.ca) and Trans Union (www.transunion.ca). The law requires that a borrower applying for an insured mortgage (required if more than 80% financing is needed) must have a minimum credit score of 600. The following chart demonstrates how your credit score can affect the interest rate for which you may qualify for an automobile loan and what it means in terms of monthly payments and total amount of interest paid.

What are Credit Reports, Files and Ratings?


Your credit history is recorded in files maintained by at least one of Canada's major credit-reporting agencies: Equifax Canada and Trans Union Canada. It is possible to obtain your credit file for free. You can consult the websites of these agencies to obtain more information. These files are called credit reports. A credit report is a snapshot of your credit history. It is one of the main tools lenders use to decide whether or not to give you credit. Your credit file is created when you first borrow money or apply for credit. On a regular basis, companies that lend money or issue credit cards to you, including banks, finance companies, credit unions, retailers, send specific factual information related to the financial transactions they have with you to credit reporting agencies.

Some credit-reporting agencies report the lenders' rating of each of your credit history items on a scale of 1 to 9. A rating of "1" means you pay your bills within 30 days of the due date. A rating of "9" means that you never pay your bills at all or that you have made a consumer debt repayment proposal to the lender. A letter will also appear in front of the number: for example, I2, O2 or R2. The letter stands for the type of the credit you are using.

The Importance of Credit Scores and Ratings


Credit scores and ratings are very important to consumers. Thus, it is important for you to maintain your credit reputation to preserve your credibility. Likewise, it is important to maintain a clean credit slate so you will not find it hard to life of a normal consumer.

References


greatcreditscore.org
bdonewbeginnings.ca
ic.gc.ca

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