Ask Liz Weston

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Credit Score

Q&A: Account closure and credit scores

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Dear Liz: My mother is very focused on her credit score, which is consistently excellent. I found out that she recently called her bank and asked it to lower her credit limit on one of her long-held credit cards from $32,000 to $5,000. She uses the card only to charge infrequent, small amounts and always pays it off. She believes having a large credit limit counts as “potential debt” and hurts her credit profile, whereas I believe having a high credit limit on a lightly used card is very good for your credit. I guess we’ll find out who’s right next month when my mom diligently checks her credit score. In the meantime, could you weigh in?

Answer: You are correct. Credit scoring formulas like to see a big gap between the amount of credit you’re using and the credit you have available. Lowering your credit limit on a card can have a negative effect on your scores.

Before the advent of credit scoring, lenders did worry that someone with a lot of available credit would suddenly run up big balances and default. Data scientists discovered, however, that people who had been responsible enough to be granted high limits tended to remain responsible with their credit.

If your mother has several other credit cards and uses this one lightly, the effect may not be significant. If she wants to keep her scores high, however, she probably shouldn’t repeat the experiment with any other cards.

Q&A: This guy still sends checks through the mail. How that could mess up his credit score

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Dear Liz: My husband has a lower credit score than I. He gives me a check every month from his personal checking account, which I deposit in our family account so I can pay our credit cards. He thinks that he needs to pay some of the cards directly in order to improve his score. He likes to send checks by mail, the old fashioned way (which drives me crazy!). Do you think this practice will improve his score?

Answer: The short answer is no. Credit scoring formulas don’t care who pays the bills, as long as the bills get paid on time.

Perhaps explaining some credit scoring basics would help.

People don’t have one credit score. They have many, because there are many different scoring formulas in use.

The most commonly used credit score is currently the FICO 8. There are many other versions of the FICO scoring formula, including some that are tweaked for different industries such as credit cards and auto loans. In addition, there are VantageScores, a rival formula created by the three major credit bureaus: Equifax, Experian and TransUnion.

Credit scores are based on the information in your credit reports at those bureaus, which are private companies that typically don’t share information. Because information can vary from bureau to bureau, your credit scores from each bureau may differ as well.

There’s no such thing as a joint credit report or a joint credit score, so couples typically will have different scores even if they have some joint accounts. How long a person has had credit, how many credit accounts the person has and the mix of credit types can be different, resulting in different scores.

Your husband may have lower scores than yours currently, but that’s not in itself a problem that needs to be fixed. If his scores are generally above 760 on the typical 300-to-850 scale, he’ll get the best rate and terms when applying for credit.

If his scores need improving, he should start by checking his credit reports from each of the three bureaus at www.annualcreditreport.com. (These reports used to be free just once a year, but you can now get them for free every week until April 2022.) He should dispute any information that’s inaccurate such as accounts that aren’t his or accounts showing missed payments if all payments were made on time.

He may be able to improve his scores by lowering how much of his available credit he’s using or adding an account or two. Opening accounts may temporarily ding his scores, but typically the new account will add points over time if used responsibly.

And do try to persuade him to stop sending checks in the mail. A check that goes astray can result in a missed payment that can knock 100 points or more off credit scores. Electronic payments are far more secure and efficient.

Tuesday’s need-to-know money news

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Today’s top story: Can I deduct Medicare costs on my income tax? Also in the news: Is a personal loan or home equity loan right for your reno, the high price of money shame, and steps to take before you go to a car dealership if your credit score isn’t great.

Can I Deduct Medicare Costs on My Income Tax?
If you itemize, premiums, copayments, and certain other expenses may be deductible.

Is a Personal Loan or Home Equity Loan Right for Your Reno?
The best financing depends on your financial situation, including your income, credit and how much equity you have.

The High Price of Money Shame
Simply naming the emotions you feel about financial mistakes is a step toward breaking the cycle and taking control.

If Your Credit Score Isn’t Great, Take These Steps Before You Go To A Dealership
Walk in fully prepared.

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: They paid off the mortgage. Then the credit score fell. Can that be right?

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Dear Liz: My wife and I recently paid off our mortgage. We have no other debt. Soon after, I received a message from Experian that my FICO score, which has been perfect for quite a while, was reduced by 31 points. What justifies such action, and what do I need to do to bring up my score?

Answer: Credit scores were never intended to be a measure of anyone’s financial health. Instead, they were created to help lenders gauge the risk that an applicant would default on a loan or credit card debt.

Having a mix of types of credit, including installment loans (such as a mortgage) and revolving accounts (such as credit cards), generally helps your credit score. Because the mortgage was your only installment loan, that could have led to a larger-than-normal effect on your scores.

If your previous score was “perfect,” or 850 on the FICO scale, then there’s nothing you need to do. Once your scores are over about 760, you’re getting the best rates and terms, and there’s typically no other benefit to shoot for, other than bragging rights.