Ask Liz Weston

Get smart with your money

Credit Scoring

Q&A: How to improve your credit score and whether you should bother

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Dear Liz: My credit scores are good, but I was wondering if there is a way to bring your scores to 800 or more if your income isn’t that high. I always pay my bills on time and my credit card off each month. In the last two years, I took out a small loan to pay off a car, then paid off furniture and now am paying on six new windows for my home.

My FICO scores run from 747 to 781. I’m told the reason they aren’t higher is that the number of accounts I have is too low and that my credit report shows no recent nonmortgage installment loans or “insufficient recent information” about such loans. I’m pleased that my scores are that high, but they say you get the best low-interest loans with a score over 800.

Answer: It’s not true that you need FICO scores of 800 or above to get the best deals. The best rates and terms typically are available once your scores are above 760 or so on the usual 300-to-850 FICO scale. Some lenders set the bar lower, to 740, 720 or even less. Also, your income is not a direct factor in your credit scores — although having a higher income can lead to creditors granting larger lines of credit, which could favorably impact your scores.

If what you’re after is bragging rights, there are some ways to boost good scores even higher.

The easiest may be to make more frequent payments on your credit card to reduce your credit utilization, or the amount of available credit you’re using. If your issuer reports your statement balance each month to the credit bureaus, paying off what you owe a few days before the statement closing date will reduce your apparent credit utilization. Just remember to pay off any remaining balance once you get your bill.

Another approach would be to apply for another credit card and spread your purchases between the two cards, which also can lower your credit utilization. Either way, continue to pay your cards in full, since there’s no credit scoring advantage to carrying a balance.

Taking out another installment loan could boost your scores, but it’s not smart to borrow money you don’t need if your scores are already good.

Remember, too, that there are many different credit scoring formulas. There are different versions and generations of the FICO score as well as FICO rivals such as VantageScore.

If you achieve an 800 with one type of score, you might not with another — and whatever score you achieve, you might not keep for long. Your scores fluctuate all the time, based on the changing information in your credit files.

It’s worth the effort to improve bad or mediocre scores because those can cost you in many ways such as higher interest rates, higher insurance premiums, bigger utility deposits and fewer options for cellphone service. Improving already good scores doesn’t offer much if any payoff, so it’s usually not worth incurring extra costs to do so.

Q&A: Here’s how to find that annual free credit report

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Dear Liz: Please tell me the website for the free credit check. At a department store checkout counter, a stranger’s name came up connected to my cellphone number. I think I should check my credit reports, but I don’t want to pay for what I understand I can get free.

Answer: It’s entirely possible a clerk simply made a mistake in entering another customer’s phone number. But you should be checking your credit reports regularly anyway, and this is as good an excuse to do so as any. The federally mandated free site can be found at www.annualcreditreport.com. Searching for “free credit reports” can turn up a number of other sites, so make sure you use the correct one.

Q&A: How to protect your financial data in the wake of the Equifax breach

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Dear Liz: Do I have the right to notify the credit bureaus that I do not want any of my financial information stored in their files? They don’t seem to be that secure. I rarely borrow money and the three financial institutions I deal with have all the data they need to lend me money if I need some. I do finance a car on occasion, because if they want to lend me money at less than 1%, why not?

Answer: The short answer is no, you have no right to stop credit bureaus from collecting information about you. You also can’t prevent them from selling that information or keeping it in inadequately secured databases.

One thing you can do is to freeze your credit reports at all three bureaus to prevent criminals from using purloined information to open credit accounts in your name. But that will cost you.

The only bureau currently waiving the typical $3 to $10 fee for freezing credit reports is Equifax, the credit bureau whose cybersecurity incident exposed Social Security numbers, dates of birth and other sensitive identifying information for 143 million Americans. The other bureaus, Experian and TransUnion, are still charging those fees.

You’ll have to pay an additional $2 to $10 each time you want to lift those freezes, which you’ll probably need to do if you apply for new insurance, apartments, cellphone service, utilities and, of course, credit. Financial institutions may indeed have plenty of information about you, but probably wouldn’t lend you any money without access to your credit reports or scores. Freezes also are a bit of a hassle because you need to keep track of a personal identification number, or PIN, to lift the freeze.

Just in case you weren’t irritated enough by this state of affairs, understand that freezes won’t stop other types of identity theft, such as someone getting medical care in your name or giving the police your information when they’re arrested. Still, instituting freezes is probably the best response to the most devastating breach yet.

Q&A: Making sure your free credit report really is free

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Dear Liz: Please tell me again how to get my free credit report each year.

Answer: You can get a free annual look at your credit reports from the three major credit bureaus at www.annualcreditreport.com. If you search for “free credit report,” you may wind up at a look-alike site, rather than the federally mandated one. A good clue that you’re on the wrong site will be if you’re asked for a credit card number.

Your free reports don’t include free scores, which are the three-digit numbers lenders and others use to judge your creditworthiness. Your bank or credit card companies may offer free scores, or you can sign up with one of the many sites that offer them. Keep in mind that there are different types of scores, and the one that you’re seeing may not be the same as the ones your lenders use.

Q&A: How long will a tax lien linger on a credit report?

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Dear Liz: You wrote an article about how the credit bureaus are removing civil judgments and tax liens from people’s credit reports. I’ve been denied credit due to a few tax liens. Creditors won’t negotiate, even though the IRS has already deemed me unable to pay due to my disability. (I’m receiving Social Security disability income.) My question now is, how can I be sure it is being removed? Do I need to call the bureaus? Order another credit report?

Answer: Your unpaid tax liens may disappear, or they may not.

Starting in July, Equifax, Experian and TransUnion began removing liens and judgments when those records lack enough personally identifying information to ensure that the negative marks wind up on the right people’s reports. Another new requirement is that the records be properly updated, so that accounts that have been paid or resolved aren’t still showing as unpaid.

The error rate for these records was high, leading to many complaints, disputes and lawsuits. The bureaus expect to purge virtually all civil judgments but only about half of the tax liens.

If your liens aren’t purged and you can’t pay them, you may have to wait a while for them to fall off your credit reports. Paid liens are subject to the seven-year limit on how long most negative items can appear on credit reports. Unpaid liens can technically remain indefinitely, although the bureaus typically remove them after 10 years.

Q&A: Changing credit scoring formulas will help some — but not everyone

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Dear Liz: I read that the credit bureaus have started deleting black marks from people’s credit reports. This is good news for me. I have never been late on a house payment in 30-plus years, but my credit is in the low 600s due to a loan I co-signed for an ex-girlfriend who has been chronically late.

Answer: The records the credit bureaus are deleting won’t help improve your scores.

The three bureaus — Equifax, Experian and TransUnion — are removing virtually all civil court judgments and many tax liens from credit reports. Tax liens result from unpaid state or federal tax bills and civil judgments are court rulings from lawsuits filed over old debts, unpaid child support, evictions and other non-criminal disputes.

Judgments and liens caused a lot of disputes and complaints about accuracy because the records were often missing key identifying information and weren’t regularly updated. The bureaus are removing the records that don’t include minimum identifying information such as Social Security numbers or dates of birth in addition to names and addresses. The records must also have been updated within the previous 90 days.

The deleted records are expected to lead to small credit score increases for most of the 12 million to 14 million people who have such black marks on their credit reports.

Your issue is different. Because you co-signed, the loan appears on your credit reports as well as your ex’s. Every late payment hurts your credit scores. If your ex had simply stopped paying, your scores would have plunged even more — but then would have begun to improve as your responsible use of credit began to offset the default.

After seven years and 180 days, the defaulted loan would no longer show up on your credit reports or affect your scores. Because your ex keeps paying, albeit late, your credit scores sustain fresh damage each time. Each late payment also resets the clock on how long the negative marks show up on your credit reports. You won’t begin to get relief until the loan is paid off or refinanced.