FICO Archives - Page 5 of 7

March 29, 2013 By Liz Weston

Will the new credit score change your life?

In case you missed them, here are some of the issues I’ve been writing about recently:

A much-heralded new version of the VantageScore could offer big benefits to consumers, but only if lenders actually start to use it. Read all about it in “New credit score could change lives.”

HSAs still aren’t a household acronym, but more companies are offering these health care accounts–and yours might be next. For the right people, HSAs can be a way to supercharge your retirement savings since they allow you to invest unused cash contributions in stocks. But you also run the risk of having the market wipe out your health care funds right when you need them. Read “Should you invest health care funds?” for more.

Divorce doesn’t necessarily separate your credit obligations, and a vengeful or oblivious ex can really mess up your credit. Learn what you should know before and after your split in “Don’t let your ex trash your credit.”

Are you giving identity thieves the clues they need to hack into your life? If you use social media, the answer may be yes. Read “Secrets you should yank off Facebook now.”

Filed Under: Liz's Blog Tagged With: couples and money, Credit Scores, credit scoring, Divorce, FICO, FICO scores, health insurance, high-deductible health insurance, HSA, Identity Theft

March 11, 2013 By Liz Weston

Should you pay to boost your credit scores?

Dear Liz: I’ve seen advertisements for services that promise to help you raise your credit score by the exact number of points you need to qualify for a good mortgage rate. Are these services worth the money?

Answer: There’s one thing you need to know about these services: They don’t have access to the actual FICO formula, which is proprietary. So what they’re doing is essentially guesswork.

They may suggest that you can raise your score a certain number of points in a certain time frame, but the FICO formula isn’t that predictable. Any given action can have different results, depending on the details of your individual credit reports.

Rather than pay money to a firm making such promises, use that cash to pay down any credit card debt you have. Widening the gap between your available credit and your balances can really boost your scores. Other steps you should take include paying your bills on time, disputing serious errors on your credit reports and refraining from opening or closing accounts.

Filed Under: Credit & Debt, Credit Cards, Credit Scoring, Q&A Tagged With: Credit Bureaus, Credit Cards, Credit Reports, Credit Scores, credit scoring, FICO, FICO scores, mortgages

March 4, 2013 By Liz Weston

Roommate may be not be telling the truth about his credit

Dear Liz: I have a roommate who has truly bad credit. He has been turned down from getting a checking account at banks because his mom bounced checks on his account when he was 18 (he is now 31). What is the best way to rehab his credit? He can’t get a secured credit card because he doesn’t have a checking account. Is there a way around this?

Answer: You may not be getting the full story from your roommate. If his mom misused his checking account when he was 18, it shouldn’t still be affecting his ability to establish a bank account. Reports to Chexsystems, the bureau that tells banks about people who have mishandled their bank accounts, typically remain on file for only five years.

Your roommate should first request a free annual report from Chexsystems at http://www.consumerdebit.com and dispute any errors or old information. Even if he’s still listed in Chexsystems, he could get a so-called “second chance” checking account from several major banks, including Wells Fargo, Chase and PNC Bank. Responsible use of those accounts should allow him to graduate to a regular checking account. Then he can start the process of rehabilitating his credit.

Filed Under: Credit & Debt, Credit Scoring, Q&A Tagged With: banking, Chexsystems, Credit Cards, Credit Scores, credit scoring, FICO, FICO scores

February 25, 2013 By Liz Weston

Does paying down installment loans help your credit?

Dear Liz: I know a high balance on a credit card hurts your credit score and that it’s best to keep balances low and pay them off each month. But does the same theory hold true for installment borrowing such as auto or student loans, which obviously have a higher balance in the beginning of the loan repayment period?

Answer: Paying down installment loans will help your credit score, but typically not as dramatically as paying down balances on revolving debt such as credit cards.

The leading FICO credit scoring formula is much more sensitive to balances on revolving accounts. The wider the gap between your available credit and the amount you’re using, the better.

Filed Under: Credit & Debt, Credit Scoring, Q&A Tagged With: Credit Scores, credit scoring, credit utilization, FICO, FICO scores, installment loans, revolving accounts

February 11, 2013 By Liz Weston

So is it pointless to try to fix credit report errors?

Dear Liz: I watched 60 Minutes last night regarding the 3 credit bureaus and was amazed at what I learned. I was hoping to spend time trying to repair our credit score, but according to the report last evening, it sounds like a total waste of time as the three credit bureaus basically are not accountable to anyone and they very rarely take action in your defense. Was this a one-sided view?

Answer: The credit bureaus would tell you yes, but the answer is way more complicated than that.

The show reported that 40 million Americans have errors on their credit reports. That’s about one in five U.S. adults covered by the credit bureau industry. About half (one in 10) have errors serious enough to hurt their credit scores.

(Update: A Federal Trade Commission report released today said one in four had at least one “potentially material error” on at least one of their three credit reports and that one in 20 consumers had significant errors on their credit reports that could cause them to pay more loans.)

That’s a pretty high error rate, but an even bigger problem is that the process to fix mistakes is almost completely automated and structured to favor the data provider (the banks, lenders and others supplying information) over the consumer. Here’s how the Ohio attorney general described it:

“The federal law says that if you believe that there is a mistake, you can go to them and they have an obligation to do a reasonable investigation. They’re not doing a reasonable investigation. They’re not doing an investigation at all.”

The show interviewed former bureau employees in Chile who confirmed what others have reported: that their jobs were to assign two-digit codes to the complaints. That’s it. Then the complaints are forwarded to the lenders and other data providers for response.

People can and do get errors fixed if the data provider acknowledges the error or simply fails to respond to the credit bureaus’ queries. If the data provider continues to insist it’s right, however, it’s pretty tough (if not impossible) to get the bureaus to step in.

That’s how people get caught in seemingly endless cycles of disputing mistakes only to have them reappear, or never disappear, from their reports.

The credit bureaus, which apparently turned down opportunities to respond on camera, now point to a study by the Policy and Economic Research Council that found 95% of consumers were satisfied with the outcome of their disputes. The study was paid for by a grant from the Consumer Data Industry Association, which represents the credit bureaus.

It’s not exactly pointless try to fix errors. The FTC report said four out of five people who dispute errors get results. You should still try, and you may well find it’s possible, but you should plan to be tenacious if your initial efforts are rebuffed. (You should get your free credit reports directly from www.annualcreditreport.com. Don’t go to other, lookalike sites, some of which are owned by the credit bureaus but that aren’t the federally-mandated site that gets you your free reports.)

You should also support efforts by regulators and consumer advocates to require the credit bureaus to put a more responsive system in place.

Filed Under: Credit & Debt, Credit Scoring, Q&A Tagged With: AnnualCreditReport.com, Credit Bureaus, Credit Reports, Credit Scores, credit scoring, FICO, FICO scores

February 11, 2013 By Liz Weston

Ex-wife is still on his credit cards

Dear Liz: My boyfriend is deployed. I have his power of attorney, and during his deployment I have paid off all of his credit card debt. The accounts now need to be closed because they are ones that were acquired with his former wife. I know you say that it will hurt his credit to close accounts, but I’d rather close them because they’re tied to his ex.

Answer: If the former wife is a joint account holder on the cards, they should have been closed and the balances transferred to other credit cards in his name only before the divorce was final. The credit score dings from closing accounts and opening new ones pale compared with the potential damage a vengeful, or neglectful, former spouse could do with those cards. She could have run up big balances or tried to wrest control of the accounts and then failed to pay them, ruining his credit scores.

If your boyfriend has several other open credit cards, you could simply close these. If he doesn’t, you might talk to the credit card companies about closing these cards and simultaneously opening new ones in his name only. This might be tricky to do while he’s deployed, however, even with a power of attorney. Another option is to simply open a new card for him online before closing the others.

Filed Under: Couples & Money, Credit & Debt, Credit Cards, Credit Scoring, Q&A Tagged With: account closure, closing accounts, Credit Cards, Credit Scores, credit scoring, debt, Debts, Divorce, FICO, FICO scores

February 4, 2013 By Liz Weston

Don’t close accounts; pay off debt instead

Dear Liz: I’m 22 and a graduate student with only one year left before I enter the “real world.” I have four credit cards — one store card, two Visa cards and one MasterCard — only one of which carries a balance. I want to make the best decisions regarding my financial health. Which would be better for my credit: closing the account that’s the oldest (opened when I was 18) but that will no longer be used because of its small credit limit and high interest rate, or leaving the line open?

Answer: Closing accounts can’t help your credit scores and may hurt them. If you had a long credit history and many accounts, the impact of closing a low-limit account shouldn’t be that great. With such a short history and relatively few accounts, though, you could be doing unnecessary damage to your scores.

The best thing you can do for your financial health, now and in the future, is to pay off your credit card balance. Credit cards should be used as a convenience, not as a way to live beyond your means. Resolve to charge no more than you can pay off in full each and every month. You’ll save yourself a fortune in interest and help protect yourself against bankruptcy.

Filed Under: Credit & Debt, Credit Cards, Credit Scoring, Q&A Tagged With: Credit Cards, Credit Reports, Credit Scores, credit scoring, FICO, FICO scores

February 4, 2013 By Liz Weston

You don’t have to be in debt to have good scores

Dear Liz: How deep in debt must a person get before he or she is able to get a mortgage on a home? My grandson, age 26, has been steadily employed by the same company for nearly six years. He rents a place he can afford, buys used cars for cash, has a nice savings account and basically avoids debt by not buying things he can’t afford with cash. Now he would like to begin investing in a home. When applying, however, all he hears is that because he doesn’t have a credit rating, he can’t get a loan. Does he really have to create debt in order to get a loan?

Answer: The idea that you have to be in debt to have a good credit score is a persistent and destructive myth. It’s just as wrong as the idea that all you have to do to have good scores is manage your finances responsibly.

To have good credit scores, you must have and use credit accounts. This does not mean you have to be in debt or carry credit card balances. Simply using a couple of credit cards lightly but regularly and paying them off in full is enough to build good scores over time.

Your grandson may need to start by getting a secured card, which offers a line of credit equal to the amount of cash the applicant deposits at the issuing bank. Websites such as NerdWallet, CreditCards.com, CardRatings.com and LowCards.com highlight current secured card deals.

He also could consider “piggybacking” onto someone else’s good credit by being added as an authorized user to that person’s credit card. In some cases, the other person’s history with the card can be imported to your grandson’s credit bureau files. The person considering adding your grandson should check with the issuer to see whether such an import is possible.

Filed Under: Credit & Debt, Credit Cards, Credit Scoring, Q&A Tagged With: Credit Cards, Credit Reports, Credit Scores, credit scoring, debt, Debts, FICO, FICO scores

January 21, 2013 By Liz Weston

Skip a payment, trash your scores

Dear Liz: We are trying to negotiate our second mortgage and have not paid it since June. Will this affect my wanting to purchase an auto?

Answer: It may not affect your desire to purchase a car, but it’s likely to affect the actual transaction if you’re not able to pay cash.

Failing to pay a credit obligation can devastate your credit scores, the three-digit numbers lenders use to gauge your creditworthiness. The worse your scores, the less likely you are to find a lender willing to do business with you. Even if you can secure a loan, it’s likely to come with a scandalously high interest rate.

Filed Under: Credit & Debt, Credit Scoring, Q&A Tagged With: Credit Scores, credit scoring, FICO, FICO scores, mortgages

January 7, 2013 By Liz Weston

Does giving up your land line hurt your credit scores?

Dear Liz: I recently heard that not having a land-line home phone number can hurt your credit score because it indicates instability. Is this true? I, like many people, use only my cellphone and no longer have a land line.

Answer: The answers to most credit scoring questions are complex because the formulas are complex. In this case, though, the answer is simple. What kind of phone you use is not a factor in your credit scores.

Credit scores are based on the information in your credit reports, which typically doesn’t include information from telephone companies unless you’re applying for a new account (in which case a credit inquiry may appear) or seriously delinquent in paying your bills (in which case a collection account may appear).

Lenders typically use other criteria in addition to your credit score to evaluate your application. Those criteria may include your income, your debt-to-income ratio, how long you’ve worked for your current employer and other information that’s not part of the credit scoring formulas. So it’s conceivable a lender might prefer people who have land lines, but with so many people using cellphones only, that lender would certainly be behind the times.

Filed Under: Credit Scoring, Q&A Tagged With: Credit Bureaus, Credit Reports, Credit Scores, credit scoring, FICO, FICO scores

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