Given the myriad rules and regulations governing credit reports and scores, many consumers do not fully understand these important sources of financial information. Therefore, in order to facilitate greater financial literacy and promote sound fiscal decision making, we closely examined the relevant laws and compiled this Credit Report & Score Bill of Rights.

This document is a summary of your rights and as a result does not include the full details of the pertinent laws. If you want to see the laws in their entirety, check out the Fair and Accurate Credit Transactions Act of 2003, The Fair Credit Reporting Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Credit Repair Organizations Act.

Credit utilization refers to how much of your available credit you use on a monthly basis. It’s extremely important that your spending not approach your credit limit because FICO—the largest credit scoring agency in the United States—factors credit utilization into its scoring in the form of a balance-to-available-credit ratio, and the lower it is the better. This is one of the most important tenets of credit card use, and failing to adhere to it could lead to lowered credit standing.

Still, there are various myths and misconceptions that mislead consumers and hamper their efforts to use credit responsibly. Because a proper understanding of credit utilization is essential to responsible credit card use, we at Card Hub decided to tackle some of the most important credit utilization questions and expose the facts behind this significant aspect of credit card use.

There are various quantitative and qualitative ways to determine if you have bad credit—the easiest and most definitive of which is if you have a FICO score of less than 620. According to a recent study by FICO, the leading credit score provider, at least 43.4 million people could be classified as having “bad” credit following this recession. Realizing that you are not alone in having bad credit (though it may feel like it) is the first step, but you must also acknowledge that there are no quick fixes to this situation. Credit can only be improved through consistent responsible activity, so be wary of offers that promise miracles.

A history of bad credit can make a consumer feel as if he or she is drowning. Like a swimmer who sinks beneath the ocean’s surface and makes strong, consistent strokes to bring his or her head above water, a consumer needs to consistently add positive information to a credit report in order to mitigate past negatives and improve his or her credit score.

The first thing you should do before applying for a loan is go to AnnualCreditReport.com and get your credit report from all three credit bureaus to make sure that there is no inaccurate information that could be damaging your credit score. Everyone is entitled to a free credit report from each bureau every 12 months. You want to be sure to check all three because, although it is a good sign that one of them is accurate, there can be discrepancies so don’t assume that they will be the same.

The next thing you should do is maximize the positive information that is consistently being reported to the credit bureaus (and therefore on your credit report). If there is negative information on your credit report, unfortunately it is not under your control to remove it. Negative information will be removed from your credit report automatically 7-10 years after it was first reported. If this is your situation, it is even more important to increase the flow of positive information in order to dilute the negative.

Your credit score is calculated from a lot of different credit data in your credit report, so there is no formula that guarantees your score will go up in any specified period of time. The factors that affect your credit score include things like your payment history, the length of your credit history, the amount of debt you have, and the percentage of credit you use in relation to the amount of credit that is available to you.

Before you can start working on improving the information that affects your credit score, you need to make sure that no new negative information is being reported on your credit report. For example, you don’t want to have an open credit card account on which the lender, on a monthly basis, continues to report you as being delinquent. It’s fine if you have existing negative information on your credit report, but it is important that you cut off any additional negative information from coming in before you can start improving your score.

Yes.  You don’t have to have a credit card to have bad credit. If you have or have had a student loan, auto loan or mortgage that you have been late making payments or defaulted on, then your credit score would have been negatively affected.  Likewise if you have had a credit card in the past that you managed irresponsibly then there could be damage on your credit report for up to seven years from the date that any of your old accounts were opened.  Additionally, if you have any accounts in collections (e.g. medical or utility bills), your credit would have suffered.  Lastly, if you have declared bankruptcy in the last 10 years, then your credit is probably pretty bad.

If none of these things apply for you and your are still unable to get a loan, then you probably have no credit, in which case you may want to apply for a secured credit card.  With a secured credit card, a deposit starting at $200, acts as collateral against your loan, and you can start building/improving your credit history with very little risk to you or your lender.

Your new credit card will show up on your credit report roughly a month after you receive the card in the mail.  This first record of your new account on your credit report will mark the end of your first billing cycle.  Each credit card company reports according to its own schedule, therefore there is no set industry standard date for reporting.  Usually, most credit card companies report to the credit bureaus within a couple days of the close of your billing cycle, which falls roughly on the same date every month.  For example, if your billing cycle ended on the 15th of each month, your credit card issuer might report to the bureaus on the 16th or the 17th of each month.  Given that you haven’t received your first statement, you can call your new credit card issuer to find out when your billing cycle begins and ends.

When you fill out a credit card application the credit card issuer will check all three major credit bureaus – TransUnion, Experian and Equifax.  Your credit report should be very similar or the exactly the same across all three bureaus.  If it is not, you may want to check for inaccuracies.

Before deciding to approve or deny your application any credit card company will look very closely at the timeliness of your payments across all of your revolving accounts, the length of your relationships with your lenders and the percentage of the credit that’s been extended to you that you are using at the time of application.

No.  It won’t ruin your credit, and unless you are 30 days or more late, the late payment will not even show up on your credit report.  That being said, this is a very bad habit to get into, so make sure you don’t do it again.  Even if you are just one day late, your credit card company will assess a late fee on your account.  If you are more than 30 days late, your credit card company will report you to the credit bureaus and this one late payment will stay on your credit report for seven years, even though it will only have a marginal impact on your actual credit score after the first couple of years.  The bottom line is that you should everything you can to pay your credit card bill on time EVERY time.

No.  Making your credit card payments by the due date is what will affect your credit score.  There are no benefits associated with making early payments.  However, making your payment well before the due date on your credit card statement is a great habit to practice.  Waiting until the last minute to make your payment can sometimes cause it to be marked as late.  This can be attributed to the time it takes to process your payment as well as other factors.
The three things that most impact your credit score and that are most important to keep in mind are timeliness of your payments, the length of your relationships with your lenders and the percentage of the credit that’s been extended to you that you are using at any given time.

No, not at all.  Debit cards, sometimes referred to as bank cards, are as widely accepted as credit cards, and transactionally, they work the same way.  However, a debit card is linked to your personal bank account, and as soon as you make a purchase with a debit card the money is immediately withdrawn from the account associated with it.  Because of this, there is no bill at the end of the month for the purchases made with a debit card – just an itemized statement.  Debit cards were created for convenience, but they have no more an effect on your credit than would writing a check.

Alternatively, when you make a purchase with a credit card, you are simply lowering your amount of available credit, and you will receive a bill at the end of the month for which you are responsible.

There is no standard number that your credit score will go up each month if you have a secured credit card or line of credit of any other kind.  There are a wide number of factors that determine your credit score and these factors are all based on your behavior and not on what type of or how many credit cards your have.  Plus your credit score is calculated based on your overall credit history, not just the activity on one account.
A secured credit card works just like any other credit card, expect for the deposit that’s required to open the account.  If you are opening a secured card account because you have no credit or bad credit, then you should see an improvement in your credit score, provided that you manage your secured account responsibly by paying your bill on time each month and being careful not to go over your credit limit.
Following these rules will lead to an improvement in your credit score.  However, if you mismanage a secured credit card account by going over the limit and/or not paying your bills on time, then your credit score will drop, just as it would if you did this with a traditional credit card.

If you don’t pay your credit card bill for a particular month, you become delinquent on your account, and will be assessed a late fee, even if you are just one day late.  If you miss a second payment (which will put you at 30 days delinquent), you be assessed another late fee.  Additionally, at this point your credit card issuer will report you as being late to the three major credit bureaus, which will begin to negatively impact your credit score and affect your ability to get approved for other credit cards and/or loans.  After your late status is initially reported, your credit card issuer will continue to report your delinquency to the credit bureaus, once a month, until you bring your account back to current.

Potential lenders do not necessarily “track your spending” as they evaluate your credit worthiness.  The three things that are most important to any creditor are the timeliness of your payments, the length of your credit history and the way you use the credit that is available to you.
If you don’t carry a balance on your credit cards for an extended period of time your accounts are still reported to the credit bureaus as being “in good standing” every month.  Plus no balance means no bill, so there is no need to worry about making your payments on time.  Lastly, zero balances on your credit card accounts are a good thing for your debt to credit line ratio, which is the sum of the total amount of debt that you have measured against the sum of your available credit across all of your credit card accounts.  The debt to credit line ratio is one of the factors that potential lenders look at plus one of the factors that determines your credit score.

Whether you use your credit card each month and then pay your balance in full or choose not to use it at all, the account associated with this card will be reported to the credit bureaus as being current and in good standing.   The first approach will teach you how to manage credit responsibly but requires more discipline than does not using your credit card at all.   The difference between these two approaches as they affect your credit score is marginal so do what’s best for you.

Before you close an account associated with an unused credit card there are two things you should consider.  The first is how closing that account will affect the amount of unused and available credit you have and the second is how long that account has been open.

Closing an account associated with an unused credit card might hurt your credit score if it significantly affects your debt to credit line ratio.  Your debt to credit line ratio is the sum of the total amount of debt that you have measured against the sum of your available credit across all of your credit card accounts.  The debt to credit line ratio is one of the factors that determines your credit score – the lower this ratio the better.  So in layman’s terms, closing an account that significantly increases your debt to credit line ratio will negatively impact your credit score.

It may, depending on how much you lower your credit limit.  Lowering your credit limit affects your debt to credit line ratio, which represents the amount of credit card debt you have accumulated against the amount of credit that’s been extended to you across all of your credit cards.  A rule of thumb is that this ratio should be kept under 60 percent.  In short, this means that if you have $5,000 in open balances and a line of $10,000 in available credit across all of your credit cards, lowering the limit on one of your cards by $3,000 dollars would negatively affect your credit score even if the balance on that card was zero.  This is because your new debt to credit line ratio under this equation would be $5,000 / $7,000, which will translate to well over 60 percent.  If the balance on the card in question is zero, then you have no reason to lower your credit limit.  The more unused credit you have, the less desperate you look to future lenders.  If you are worried about being tempted to spend too much money, then give the card to someone you trust or even throw away the plastic after you note down your account number.

It depends.  Going over the limit on your credit card account affects your debt to credit line ratio, which represents the amount of credit card debt you have accumulated against the amount of credit that’s been extended to you across all of your credit cards. The debt to credit line ratio is calculated each time a billing cycle for any of the credit cards you have closes.  If you went over-the-limit on your card and paid down your balance before the billing cycle ended, then the high balance won’t be taken into account at all.  If the balance still stands at the close of the billing cycle, it will be used to calculate your new debt to credit line ratio, but it might not make much difference depending on how much available credit you have across all of your other credit cards.   A rule of thumb is that this ratio should be kept under 60 percent.

Finally, keep in mind that regardless of what happens with your credit score, you will be assessed an over the limit fee for exceeding your credit limit.   This fee can be as much as $39 dollars.

No; not at all.  Late payments are not reported to the three major credit bureaus until they are 30 days or more past due.  It is at this point that your credit can begin to be negatively affected, but not before.  Even though making a payment a few hours late doesn’t have any real adverse effects, it’s best not to make a habit of this.  You should keep note of when your credit card payments are due and make your credit card company receives at least the minimum payment on or before the due date.   Also remember that, regardless of how late you are – even if it’s only two hours – you will be assessed a late fee.