Ask Liz Weston

Get smart with your money

Credit Scoring

Q&A: Closing credit cards could hurt scores

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Dear Liz: If I have a few credit cards, why would my credit be negatively affected if I paid off and closed some?

Answer: Your credit scores won’t be negatively affected by paying off your card balances — quite the opposite. Paying off debt improves your credit utilization — the amount of your available credit you’re actively using — and that’s a powerful way to boost your scores.

If you close accounts, however, that would reduce your available credit, and that’s bad for your credit scores. That doesn’t mean you can never close a credit card, but you should do so sparingly and try to keep open your cards with the highest limits, if possible.

Q&A: Don’t close that credit card

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Dear Liz: I’m debt free with a comfortable income and excellent credit. I just got a new cash-back credit card. I have three other credit cards, including one affiliated with a retail chain that I no longer use. Should I close the retail chain card so I only have three cards? Should I have fewer?

Answer: More is often better when it comes to your credit scores. The scoring formulas may temporarily drop a few points when you apply for a new card, but having at least four active credit accounts can help you achieve and keep high scores.

The formulas won’t punish you for having too many accounts or too much available credit. You could get dinged, though, if you use too much of that credit at one time. To avoid that, try to keep your balance on each card below 10% of its available limit.

Q&A: Establishing credit without debt

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Dear Liz: My wife and I are retired. We have always paid our credit card balances in full each month and have zero debt. A banker recently advised us to establish credit and make timely monthly payments in order to maintain a high credit rating in case we need to borrow in the future. I feel uncomfortable taking money from our investment portfolio to service debt, but I also wish to maintain our high credit rating.

Answer: You don’t need to take on debt or carry credit card balances to have good credit scores. Using a few credit cards lightly but regularly is enough.

Taking out an installment loan can help boost your scores if you’re trying to repair troubled credit. You also may need an installment loan on your credit reports if you want the highest scores possible. But the highest possible scores only give you bragging rights, not better rates and terms on borrowing.

If you’re concerned about maintaining your credit, consider monitoring at least one of your scores. Your bank or one of your credit card issuers may provide a free score, or you can sign up on one of the many sites that offer them. That will give you a better idea of how lenders view you as a credit risk and can help you see which behaviors help and hurt your scores.

Q&A: Wondering why your credit score is bad? Here’s how to make it better

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Dear Liz: I am trying to get my credit score figured out and was wondering if you have any recommendations for a credit report guru in my area? I need someone to walk me through why my score isn’t higher and to help me resolve that issue.

Answer: Unfortunately, many credit repair companies are scams. Even those that are legitimate are essentially selling you something you can do on your own, for free.

Understand first that you don’t have just one credit score: You have many, and they change all the time based on the information in your credit reports. Consider signing up for a service that provides you a free score that you can monitor over time. That can help you understand what behaviors help and hurt your credit. These services also typically give you reasons why your score isn’t higher. (You may be able to get a free credit score from your bank or a credit card issuer. If not, many sites online provide free scores.)

Next, get all three of your credit reports for free from AnnualCreditReport.com. (Type the address into your browser rather than using a search engine, since there are many look-alike sites. If you’re asked for a credit card, you’re on the wrong site.)

Look for obvious problems, such as accounts you don’t recognize or late payments being reported when you paid on time. Dispute incorrect information, using the links provided. Negative information that is correct can typically stay on your credit reports for seven years, although the impact on your scores should diminish over time.

In general, you can improve your scores by paying bills on time, using 10% or less of your available credit limits and having a mix of credit types (credit cards and installment loans). If you’re starting from scratch or trying to improve bad scores, consider a credit-builder loan from a local credit union or an online lender.

Q&A: Credit report mistakes are common. Here’s how to fix them

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Dear Liz: Two of my credit card issuers have drastically lowered my credit limits. They blamed my credit report at Equifax. At first, Equifax could not even find my report. I had to send paperwork to verify that I even exist. It turned out that my credit file had some inaccuracies. One of the credit card companies restored the credit limit on one of my cards but kept the lower limit on the other card. I have filed complaints with the Consumer Financial Protection Bureau and would appreciate any advice as I am confused and upset.

Answer: That’s understandable, and you’re not alone. Problems with credit bureaus topped the CFPB’s list of consumer complaints in 2022.

You did all the right things: getting a copy of your credit report, disputing the errors, following up with the credit card companies and filing a complaint with the CFPB when your credit limits weren’t restored. The CFPB will reach out to companies to help facilitate a resolution.

If that doesn’t work, consider contacting your local congressional representative. These lawmakers typically have constituent services staff that may be able to help.

You should check your credit reports at Experian and TransUnion in case the errors aren’t limited to a single bureau. If the inaccuracies stem from possible identity theft, consider freezing your credit reports at all three bureaus to make it harder for scam artists to open new accounts in your name.

Q&A: How to help someone else build credit

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Dear Liz: My 30-year-old son lives in Southeast Asia. He has some U.S. bank accounts but no U.S. credit cards. If I add him to my credit card, will that help to establish credit? Or is there another way for him to start getting credit in the U.S.? At some point, he and his wife will move back to the U.S.

Answer: Adding someone to your credit card as an authorized user can be a great way to help them build credit. Your history with the card is typically added to the other person’s credit reports and used in calculating their credit scores. If you can add him to more than one card, even better. As long as you use the cards responsibly — paying the bills on time, using only a fraction of the available credit — his scores should benefit.

You don’t have to give your son access to the cards for this to work. If you do, keep in mind that authorized users aren’t responsible for paying any charges.

Authorized users typically can be added or removed with a phone call to the issuer. You also can add an authorized user online by logging into your credit card account. But removing them may require you to pick up the phone.

Your son can build credit in other ways, including credit builder loans and secured cards, but those may have to wait until he has a U.S. address.