Ask Liz Weston

Get smart with your money

Credit Scoring

Q&A: When credit scores are fine

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Dear Liz: I was once told that the reason my credit score wasn’t higher was an insufficient credit history. Now I am doing what you have recommended by charging a monthly security alarm service to one credit card, a weekly church donation to another and satellite TV to a third. All are paid off each month. I checked my credit score recently and read that the reason my score isn’t higher is that I now have too many cards with balances. My score is around 860 but the comment concerns me. Should it?

Answer: Most credit scores are on a 300 to 850 scale. If your score is at or near the top of that range, you’re doing fine. Scores over 760 or so generally get the best rates and terms from lenders (the cutoff is often 740 for mortgage lenders). Higher scores just get you bragging rights.

The services that provide you with credit scores often give you automated reasons why your scores aren’t higher. Those messages can be helpful when you’re trying to build or rebuild credit. The higher your scores, though, the less helpful those messages seem to be. Even if you could fix the “problem” they’re pointing out, there’s no guarantee your scores would increase.

Q&A: A bill shows up twice in a credit report. Now what?

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Dear Liz: I have been doing everything to raise my credit scores, which were horrible. I see some medical bills on my credit reports that seem identical. Should I try to dispute them or just let them go? I heard that if you try to dispute them, it allows the creditor to restart the clock on paying them, potentially keeping them on your report for seven more years.

Answer: You heard wrong, fortunately. Disputes don’t extend the limit on how long negative information can be reported.

You may be confusing the seven-year credit reporting time limit, which is part of the federal Fair Credit Reporting Act and restricts how long negative information stays on a credit report, with state statutes of limitation.

Statutes of limitation are supposed to limit how long a creditor may sue you over a debt. (The key phrase is “supposed to.” Collectors do file lawsuits on debts that are too old, hoping that the debtor won’t show up in court to point that out.)

Statutes of limitation can range from two to 15 years, depending on the state and the type of debt. In some states, it’s possible to restart the statute of limitations by making a payment on a debt, or even acknowledging that the debt is yours. (In California, the statute of limitations is four years for most debts.)

You’ll want to avoid either until you’re sure the bills are correct. You can start by disputing the bills with the credit bureaus.

If that doesn’t remove the duplicates, you can contact each collection agency in writing. Ask them to validate that the unpaid bill actually belongs to you and that they have the right to collect. Mention that if they cannot validate the debt, you want the bill removed from your credit reports. Also ask the collector to respond to your letter within 30 days.

Removing any duplicates may help your scores. Actually paying the collections typically won’t. It’s up to you whether you want to try settling the debts and risk reviving the statute of limitations, or simply wait until the debts fall off your credit reports after the seven-year mark.

Q&A: When paying debt hurts credit score

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Dear Liz: You recently answered someone whose credit scores dropped more than 30 points after they paid off a mortgage. You mentioned that the big drop was probably because the mortgage was the person’s only installment loan. Credit scores like to see active use of both types of credit, installment loans and credit cards. Because this person’s scores were so high, they almost certainly were still actively using credit cards. But you should remind people that if they stop using credit, eventually they won’t have any credit scores at all.

Answer: Consider them reminded. There’s no need to carry balances; just using credit cards regularly is enough.

A few other readers wrote in suggesting the letter writer get a personal loan as a way of increasing their scores. Although personal loans can be a great help to people building credit, there’s really no point in increasing scores once they’re above about 760 on a 300-to-850 scale. Higher scores only get you bragging rights, and it would be a little silly to pay a lender unnecessary interest to get those.

Q&A: Weekly free credit reports

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Dear Liz: In a recent column, you wrote that credit reports are now available weekly from AnnualCreditReport.com. Most people understand that they are entitled to a free credit report once a year via that site. Please explain what is meant by “now available weekly?” By signing up for a paid service from one or more of the credit reporting agencies, or for free, or what?

Answer: AnnualCreditReport.com was created to provide free annual reports, but now you can get your free reports every week.

If you navigate to AnnualCreditReport.com, you’ll see an announcement from the three credit bureaus that the site will provide free credit reports weekly until April 2021.

Free means free. You don’t have to pay or provide credit card information, although the bureaus may try to sell you credit monitoring or other services.

Q&A: When credit scores take a pandemic dive, how to figure out what caused it

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Dear Liz: My VantageScores as reported by TransUnion were in the 780 to 790 range until around February, when they all dropped 40 points for no discernible reason. My FICO 8 and 9 credit scores remained unchanged around 760 and still continue to increase. What would cause that?

Answer: VantageScores tend to react more than FICO scores when you apply for new credit, but 40 points is a pretty big drop. The other usual culprit when good scores fall is higher credit utilization, or using more of your available credit, but typically your FICO scores would have dropped as well.

Most credit monitoring services will offer you some kind of explanation for why your scores changed, so that would be the first place to look for clues. You also should check your credit reports, which are now available weekly from AnnualCreditReport.com.

Q&A: The bottom line on getting your credit scores in better shape

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Dear Liz: I want to write a letter of explanation to be included on my credit reports to explain a negative posting. How much impact will the letter have on my credit scores?

Answer: Credit scoring formulas can’t read, so letters of explanation won’t help your scores.

You do have a federal right to demand the credit bureaus include your explanation, which is also known as a consumer statement, in your credit reports. Theoretically, the statement could help a lender understand why you have the negative mark — but only if a human being actually examines your credit report and uses the information in evaluating your creditworthiness.

Because lending is largely automated, however, there’s no guarantee your statement will be read, let alone factored into a lending decision. Many of the other details of your credit report are converted to standardized codes used to calculate credit scores, but not consumer statements.

If the negative information in your reports isn’t accurate, you can dispute it with the credit bureaus. If the information is accurate, you can work to offset the effect on your scores.

Paying your credit accounts on time, all the time, will help rebuild credit. So will using less than 10% of your limits on credit cards.

If you don’t have a credit card, consider getting a secured card — where the credit limit typically is equal to the amount you deposit with the issuing bank. Credit builder loans, available at many credit unions, also can help add positive information to your credit reports.

Don’t close accounts, because that could hurt your scores and won’t get rid of any associated negative information.

People with only a few credit accounts also can help their scores by being added as an authorized user to a responsible person’s credit card. The responsible person doesn’t need to grant access to the actual card. Before taking this step, though, ask the credit card issuer whether authorized user information will be imported to your credit reports because issuers’ policies vary.