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

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

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

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

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

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.

Q&A: Helping a son with horrible credit scores

Dear Liz: My 33-year-old son has horrible credit scores. If I added his name to my credit card, would it have a positive effect on his score without any negative ramifications to mine? Could any of his creditors come after me?

Answer: Adding someone to your credit card as an authorized user can have a positive effect on their credit scores without negatively affecting your own or obligating you to pay their other debts. You would be responsible for any debt your authorized user incurred on the card.

In your son’s case, though, being added as an authorized user probably won’t help much.

When someone has fallen behind on their bills, the effect on their scores depends on three main factors: recency (how recently did a late payment occur?), severity (how far behind are they — 30 days, 60 days, 90 days or more?) and frequency (how many accounts have late payments?).

One skipped payment can knock 100 points or more off good scores but won’t result in “horrible” credit. Truly bad credit typically requires someone to be well behind on a number of accounts in the recent past. The fact that you’re worried about his creditors indicates that he may not have resolved his financial problems enough to start rebuilding his credit.

What he should do now depends on his circumstances.

If he still has a job, he may be able to arrange a payment plan or settle debts with collectors. If his income has dropped or he’s otherwise unable to pay, he may need to consider bankruptcy.

Once his past debts are resolved — either paid, settled or legally erased — he can take steps to improve his credit, one of which could include being added to your card. A credit builder loan, offered by many credit unions, also could help, as could a secured credit card, which requires a deposit.

It’s crucial that he be able to make all his payments on time, however. If he falls behind again, he’ll offset any progress that’s been made.

Q&A: I get different credit scores from my bank and card companies. What gives?

Dear Liz: I have three financial providers that supply regular, free credit scores: my bank and two credit card issuers. My credit score from the bank is always a “perfect score” while the two card companies are consistently 17 points lower, both exactly the same for two years now. I always pay off most or all of the outstanding balance on time or early. Any clue as to why there is this consistent difference?

Answer: The companies probably are using different credit scoring formulas or different credit bureaus, or both.

You don’t have one credit score. You have many. FICO is the dominant scoring formula, but lenders also use VantageScores and the credit bureaus sometimes provide their own, proprietary scores.

The formulas have been updated over the years. The FICO 8 is the most commonly used score, but the FICO 9 is the latest version and FICO 10 will be introduced this summer. Some scoring formulas are modified to suit different industries, such as auto lending or credit cards, plus each score is calculated from data at one of the three credit bureaus.

So one institution may provide its customers a FICO Score 9 from Experian, another might offer a FICO 8 Bankcard score from Equifax and a third might give you a VantageScore 3.0 from TransUnion. Even if all three were using the same type of score, they probably would use different credit bureaus, or vice versa. To make things even more confusing, your credit scores are constantly changing as your credit bureau information changes.

Furthermore, you typically can’t predict which score or scores a lender will use to evaluate your application for credit. Rather than worry about which number is “right” — they all are — use the free scores as a general indicator of your credit health.

Q&A: This innocent oversight can torpedo your credit scores

Dear Liz: My wife just had a credit card closed due to late payments, and we need some advice. It was a mileage card that she stopped using, but in November she made a charge for $120. She forgot about the charge, and in December they added the annual $60 fee. We weren’t monitoring the card, as it wasn’t being used, so we missed paying the two charges for three months. They closed the account and refused to reopen it even after we paid the balance.

This was an account my wife had for 17 years, always making payments on time, with a $26,000 credit line. Is there a way to get the company to reopen the account? Would you suggest writing a goodwill letter asking the bank to remove the account from our credit record? This was a stupid oversight on our part, and now I fear it’s going to kill our credit score!

Answer: Let’s take the good news, bad news approach.

The good news is that there is no such thing as a joint credit score. If this account was in your wife’s name alone, then only her credit scores have been affected. If you were an authorized user on the card, then the late payments may be affecting your scores as well, but you have some recourse. You can call the issuer and ask to be removed as an authorized user from the closed account, or you can dispute the account with the credit bureaus and (hopefully) get it removed that way.

Now, the bad news. If your wife’s credit scores used to be high, they aren’t anymore. That first skipped payment probably knocked 100 points or more from her scores. The next two skipped payments just exacerbated the damage. The account’s closure didn’t help matters, but most of the damage happened when she missed the first payment.

She can try writing a letter asking the issuer for mercy, but she shouldn’t get her hopes up. The issuer no longer wants her business and has little incentive to accommodate her.

Fortunately, credit score damage isn’t permanent, but it may be a few years before her scores are back to where they were.

This is a good reminder to consider putting all credit accounts on automatic payment, so at least the minimum payments are made each month. It’s also smart to monitor at least one of your credit scores and get alerts if there’s a sudden drop. Many banks and credit cards offer free scores, as do financial websites.

Q&A: To build credit, try this set-it-and-forget-it trick

Dear Liz: I have little credit history and my Experian credit score is about 620. My wife has no credit history. We are in the process of increasing our creditworthiness. I have an unsecured credit card from my credit union. She will be getting a secured credit card. We will use these lightly and regularly, paying them off each month. Does using my credit card to pay a utility bill each month work for building credit?

Answer: Absolutely. As long as your credit cards report to all three credit bureaus, your on-time payments will build your scores.

To make things easier, you could set up a recurring charge and automatic payment. Utilities typically allow customers to pay their bills automatically with credit cards, and credit cards usually offer the option of paying automatically each month. You’re normally given three options: paying only the minimum, paying in full or paying a set dollar amount.

Recurring charges ensure your card shows regular activity, while automatic payment should eliminate the risk of missing a payment. A single skipped payment could be a significant blow to your credit scores.

Another option to consider is a credit builder loan, which many credit unions and community banks offer. Typically, the amount you borrow is placed into a savings account or certificate of deposit while you make payments.

When you’ve paid the loan in full, usually after 12 months, you claim the cash. The payments help build your credit, and the cash could be the start of an emergency fund.

Q&A: Credit scores measure Dad’s accounts, too

Dear Liz: I recently added myself onto my 95-year-old father’s two credit card accounts as an authorized user. I am his agent under a power of attorney and handle his finances. I noticed that after being added to those accounts, my credit scores increased. When he passes on, I plan to close those accounts. Will my credit score be negatively affected?

Answer: Possibly. Closing accounts doesn’t help your scores and may hurt them. Scoring formulas are sensitive to the amount of credit you have versus how much you’re using. Closing an account shrinks your available credit, and the formulas don’t like that.

If you have good scores and plenty of other open accounts, though, the damage from closing these accounts probably will be minor and short-lived.