October 31, 2022 By

Q&A: Got an old credit card that you no longer use? What to do instead of canceling it

Dear Liz: I have been keeping a credit card that I no longer use because I’m afraid that canceling it may reduce my credit score. I have had the card since 1983, and it shows on my credit report as my longest credit relationship. I have other credit cards that I use regularly. I no longer have a mortgage. Should I keep the unused card?

Answer: Closing the card certainly won’t help your scores, but it’s impossible to know in advance how much they might be hurt. That doesn’t mean you should never close a card, but you may want to consider alternatives, particularly because this is your oldest card.

Does the issuer offer another type of card with cash back or other rewards you could use? If so, consider asking for a “product change” to the new card. That should preserve your long history with the account while supplying you with a credit card that better suits your needs.

Filed Under: Credit Cards, Credit Scoring, Q&A
October 24, 2022 By

Q&A: A spouse’s debt, your credit score

Dear Liz: My spouse and I have added each other as authorized users on our credit cards. My spouse has more debt than I do. Does this impact my credit scores?

Answer: Possibly. Credit scoring formulas look at how much available credit is being used on each account. If your spouse has higher balances than you but also higher credit limits, your credit scores may not be harmed much, if at all. If, on the other hand, your spouse is using most of their available credit, your scores could suffer.

Most services that provide credit scores (including possibly your bank and your credit cards) typically offer some explanations about why your scores aren’t higher. If the explanations include anything about excessive credit utilization, you may want to consider getting yourself removed as an authorized user from the problematic cards.

Filed Under: Credit & Debt, Credit Scoring, Q&A
October 3, 2022 By

Q&A: Investigate a credit score drop

Dear Liz: I had an 836 credit score as of last week. I’m a business owner and have been using my company credit card to pay bills on a large project to get 2% cash back. I charged $52,000 of the $70,000 I have available on that one card. (I have about $175,000 available across the three business cards I have) and my credit score went down to 699! I pay my cards off within days of receiving my statements. Is this a bad use of my cards? How long do you think it will take to get my score back up? Side note: I don’t need any more credit, but my business line of credit is coming up for renewal and I am buying a new truck in two months. Do you think this will be an issue?

Answer: Lower scores could cause you to pay more for credit, so it’s worth fixing this issue promptly.

There’s nothing wrong with using your cards to get rewards, as long as you’re paying your balances in full and not using too much of your available credit. Ideally, you’d use less than 10% of the limit on any card at any given time. (Credit scoring formulas pay close attention to the amount of credit you’re using on each revolving account as well as how much of your available credit you’re using overall.)

If you need to use a lot more of your credit limit, consider making more than one payment a month. Some people make bi-weekly or even weekly payments to keep their balances low.

(The balances that factor into your scores are typically the amounts that you owe on your statement closing date.)

Credit card issuers typically report to the credit bureaus every month, so it shouldn’t take more than 30 days for lower balances to improve your scores.

It’s a little unusual, however, for a business credit card to affect your personal credit scores. Typically, business accounts don’t show up on your credit reports, even if you used your personal credit history to apply for the cards. You may want to pull your three credit reports from AnnualCreditReport.com to see if other problems may have contributed to your score drop.

Filed Under: Credit Scoring, Q&A
September 26, 2022 By

Q&A: If the credit card is paid off, will the credit score go up or not?

Dear Liz: If I pay off my credit card and carry a zero balance, will my credit score go up quite a bit?

Answer: That depends, among other factors, on how much of your available credit you were using on that card. The closer you were to being maxed out — which means using most or all of your available credit — the more dramatic the improvement you might see.

But your credit scores also depend on a number of other factors, including how long you’ve had credit, how many open accounts you have, how much of the available credit you’re using on those accounts, when you last applied for credit and whether you have any negative marks, such as late payments, in your credit reports.

In general, credit scores respond favorably if you use only a small portion of your available credit. People trying to obtain top scores generally try to keep their credit usage below 10% of their credit limits.

Filed Under: Credit & Debt, Credit Cards, Credit Scoring, Q&A
August 29, 2022 By

Q&A: Dealing with credit challenges

Dear Liz: I felt you should have corrected the person who said they felt like a loser because heavy credit card usage lowered their credit scores. I went through a period of poor credit after I was diagnosed with amyotrophic lateral sclerosis (ALS). It took about nine months to get our financial footing again. My scores are on the mend now, but at no point did I feel like a loser. In fact, I am very proud of how I and my family responded to this challenge. Many people are hit with misfortune that is no fault of their own. Often they are truly winners with how they respond. I hope you take the opportunity to make a comment about how bad credit doesn’t make a person a loser. That often the best of us are revealed by how we deal with it instead.

Answer: The original letter writer was making a wry comment about their situation, writing that their husband “thinks it’s funny he has great scores and I look like a loser!”

But your point about people being more than their credit scores is well taken.

Filed Under: Credit Scoring, Q&A Tagged With: ,
August 1, 2022 By

Q&A: Here’s what you should do about suspicious credit report activity

Dear Liz: I recently obtained copies of my credit reports from the three major credit bureaus and discovered my brother’s home address listed in the personal information section. I am extremely concerned about how and why this happened since I have never lived with my brother. This brother is the executor of our father’s estate, and the address listing was dated just before the distribution of that estate. What possible reason could my brother have for searching my credit background? I have zero communication with him because of an ongoing feud. He ignores any requests or inquiries. After I discovered this, I asked the bureaus to remove the address and put security freezes on all three credit reports, which I probably should have done sooner.

Answer: Your brother’s address wouldn’t show up in your credit reports in the unlikely event he had checked your credit. It might show up there if he had committed identity theft using your information, but if nothing else was amiss — you didn’t spot a credit account or loan you didn’t recognize, for example — then most likely the error was made by a creditor or other company that reports information to the credit bureaus.

The federal Fair Credit Reporting Act limits who can access your credit reports. Only businesses with a legitimate need to know the information can do so, and often your permission is required. You can check who has accessed your credit during the last two years in the “inquiries” section of your credit reports.

You may never discover exactly how your brother’s address wound up in your file, but you took the right steps in disputing the error and in freezing your credit reports.

For readers not as credit-report savvy: You can access your reports for free at AnnualCreditReport.com. But be careful; lots of sites want to sell you your reports from Equifax, Experian and TransUnion. If you’re asked for a credit card number, you’re on the wrong site.

When you get your reports, look for accounts that aren’t yours and other suspicious activity. Consider freezing your credit reports at each of the bureaus to prevent someone from opening new accounts in your name. You can thaw the freeze whenever you need credit, also for free.

Filed Under: Credit Cards, Credit Scoring, Q&A Tagged With: ,
July 18, 2022 By

Q&A: Credit scores and usage

Dear Liz: Thanks for your recent column about how credit scores react to heavy credit card usage. We pay our credit cards in full each month but recently we had big charges on three cards for vacations, home supplies and other purchases. I am the primary account holder on all three cards and my credit scores tanked! I even got email warnings about it from my credit monitoring service.

I have paid off two of the cards and will pay off the third one soon. My husband has one credit card in his own name that he occasionally uses and he is an authorized user on the others. I have always been the fanatical financial partner so he thinks it’s funny he has great scores and I look like a loser! Good thing we were not planning to do a house purchase or refinance the mortgage.

Answer: Pretty soon your husband will have to find something else to tease you about. Your scores are likely to return to their previous levels once the high balances are paid off and you return to your normal spending habits.

Many people are surprised by how dramatically credit scoring formulas react to the amount of available credit they’re using. But this knowledge can help you the next time you’re planning to get a major loan.

For example, you could throttle back your credit card usage starting a couple of months before your application. Alternatively, you could make weekly payments instead of monthly ones to ensure the balances reported to the credit bureaus, and used in your scores, are as low as possible.

Another approach is to pay off your balance a few days before the statement closing date, since the balance on that date is the one that’s typically reported to the bureaus. (If any charges show up after you’ve paid off the balance, you’ll need to make a second payment before the due date to avoid late fees.)

Filed Under: Credit Scoring, Q&A Tagged With: , ,
July 11, 2022 By

Q&A: Credit rating after mortgage payoff

Dear Liz: We are recently retired and will own our home free and clear in about six months. Will not having regular mortgage payments dent our credit ratings? If so, what can be done as a good substitute?

Answer: Your credit scores may dip after you pay off your mortgage, particularly if you don’t have another installment loan such as a vehicle or personal loan. To get and keep the highest credit scores, you typically need both installment loans and revolving accounts, such as credit cards.

The good news: You don’t need the highest credit scores to get the best rates and terms from lenders. Using credit cards lightly but regularly can help you maintain good scores without taking on debt.

Filed Under: Credit Scoring, Mortgages, Q&A Tagged With: , ,
June 6, 2022 By

Q&A: Why credit scores drop suddenly

Dear Liz: The same thing happened to me as to the person in your column whose credit score dropped more than 100 points after large purchases. We bought plane tickets for international travel and our credit score took a significant but temporary hit. This also happened when we made a charitable gift by credit card. After an appeal, I was able to get the credit limit on the credit card we use the most increased, and I’m waiting to see if that prevents the credit score from dropping going forward. I did check our credit reports and there were no missed payments or other problems.

Answer: Credit scores can drop when you use a lot of your available credit, but a 100-plus-point drop is unusual and should be investigated. You’re smart to look for ways to mitigate the damage from high usage. Asking to have credit limits increased is one way; another is making a payment before the statement closing date. The balance on that closing date is what’s generally reported to the credit bureaus, and thus what’s factored into your scores. Just remember to pay off any remaining balance before the due date.

Filed Under: Credit Scoring, Q&A Tagged With: , ,
March 7, 2022 By

Q&A: How a new credit card can help your credit score

Dear Liz: I’ve received a notice stating that a retail credit card I’ve had for more than a decade will be converted to a Mastercard. I already have an American Express charge card and a Visa rewards credit card. I don’t need another credit card. But I’m concerned. Will the conversion hurt my credit scores? Or is having a credit card versus a retail card better for my credit scores?

Answer: Congratulations! Such conversions indicate you’ve been using the card and your other credit accounts responsibly. If you continue to do so, the new credit card could help your credit scores more than the retail card.

Although getting new plastic is both good and bad for your credit score, a credit card is typically factored into more FICO scoring variables than a retail card, said Ethan Dornhelm, FICO’s vice president of scores and predictive analytics.

“So to the extent that you have positive behaviors, it’s more likely to have a broader positive impact,” Dornhelm said.

The flip side is that if you mess up by missing a payment or running up big balances, those mistakes could have a greater effect on your scores, Dornhelm said.

Closing the account probably would be one of those mistakes, since closures reduce your available credit and in general should be avoided unless there’s a compelling reason, such as a too-high annual fee. The benefits that came with the retail card, such as discounts and free shipping, probably will transfer to the credit card, so you can continue to benefit from the account without worrying that it will hurt your scores.

Filed Under: Credit Cards, Credit Scoring, Q&A