Ask Mr Credit Card's Blog » Credit Score Repair FAQ

Should I Close Or Leave Open My Credit Card To Raise My Credit Score?

Mr Credit Card — Thu, 01 Oct 2009 11:17:51 +0000

Hello, I am paying off most of my credit cards (about 10,000). My question is regarding my credit score, should I close the accounts or leave them open. I want to raise my credit score.
Thank you.

Denise Pianforte

Answer – The simple answer is you should leave them open and just put them in the drawer if you do not want to use them. The reason is because two of the important factors that affect your credit score are the credit utilization ratio and the length of your credit history.

The credit utilization ratio is simply the amount of balance you carry versus the amount of available credit that has been granted to you. The lower the ratio the better. Closing your account will reduce the amount of available credit to you.

The longer the history of the credit line the better for your score. So keeping your accounts open helps a lot. As a best practice, charge some items to your card even if you do not want to use them. This is because credit card issuers are now more strict and are closing dormant accounts.

Lastly, Congratulations on your credit card debt reduction efforts.

Should I Co-Sign A Loan Before I Refinance My Home Loan?

Mr Credit Card — Wed, 30 Sep 2009 11:31:03 +0000

I am in the process of refinancing my home loan and my sister just asked me to help her cosign for a used car loan. If I agree to cosign could this negatively impact my home refinance?Thank you.

Carrie Brewer

Answer – If your sister needs you to cosign a used car loan, she either has bad credit or no credit. If she has no credit history, I do not think co-signing for her is going to do any harm. I’m not too sure if that is the case if she has bad credit?

But either case, the safest thing to do is to get your home loan refinanced first. Only when that is done should you consider co-signing for your sister.

By the way, if you should co-sign her loan, make sure she pays on time or you are on the hook and your credit score will take a hit if you are not on top of the situation.

Good luck with the home loan refi.

Will Pay Off All My Credit Card Balances Improve My Credit Score?

Mr Credit Card — Tue, 29 Sep 2009 11:26:23 +0000

We just have a recent email from a reader.

I don’t have stellar credit. I have just paid off the balances on ALL [6] of my credit cards [Totaling $6733.00]. How far will this action go in improving my credit score and lowering my average interest rate, which is currently near 23-28%?

Mr Keith Wilson

Answer – Keith, the short answer is yes it will. Paying off your balance should improve your credit score should improve your credit score because you would have lowered your credit utilization ratio. This is the amount of credit you are using versus what credit is available to you.

Many experts recommend not using more than 30% of revolving credit (like credit card lines) available to you. So paying off your balance and planning to pay in full every month going forward should help tremendously.

There’s a caveat. If you have taken a home equity line of credit to pay off your credit card debt, then all you would have is to play a little musical chairs with the credit bureaus and that would not help much.

One thing I don’t understand is why are you bothered by your interest rate if you have paid off your balance? Surely you do not plan to carry a balance in future? I hope not.

But otherwise, congratulations on paying off your credit card and stick to PIF going forward.

Equifax Score Watch Review

Mr Credit Card — Tue, 04 Aug 2009 16:58:19 +0000

The Equifax ScoreWatch™ is a credit monitoring service provided by equifax, one of the three major credit bureaus. Each bureau, the other two being TransUnion and Experian, have their own monitoring service. And they all come with different bells and whistles. Let’s look at this one provided by Equifax.

Basic Credit Monitoring of Your Experian Credit Report and Score – With this service Equifax will monitor your Equifax Credit Report and Equifax FICO® score. You will get notification of any major changes in your Equifax report or score via email or wireless alerts. In addition, you will get the following service.

Detailed explanations for key score changes and specific tips for understanding your score – so that you can take steps to improve your score

Explanation of your credit score, comparison to national average with graphs of how lenders view you.

Two Free Score Power® reports, plus discounts on additional Score Power® reports – This is a very important point which many consumers do not understand. Basic credit monitoring service is all it is – monitoring. You cannot actually see your credit report or your score continuosly. So for the score watch, Equifax will provide 2 free Score Power® reports. Score Power® Reports is just a term that Equifax uses for their credit report and FICO® score. So aside from credit monitoring, you can actually see your Equifax report and score twice a year. Once you access your “report and score”, you have access to it online for 30 days. So essentially, you are getting 60 days to look at your Equifax report and score.

Monthly Fees – The cost for this service is $9.95 a month.

How Does this compare with other credit monitoring service? – Well, there essentially two types of credit monitoring services. The first type simply monitors just one report (from that particular credit bureaus. The second type monitors all three credit bureaus.

Comparison with TransUnion credit monitoring service – Experian does not have a single bureau credit monitoring service, but TransUnion does. The difference between TransUnion’s monitoring service and Equifax is that TranUnion gives you unlimited access to your credit report. You also have $25,000 insurance for ID theft. But you cannot see your TransUnion score and you do not get alerts when you score changes. The cost is also higher at $11.95.

Comparison with 3-in-1 monitoring services – For those interested in monitoring your credit report constantly, chances are that you would prefer a service that monitors all three credit bureau reports. Equifax has their own Equifax Credit Watch™ Gold with 3-in-1 Monitoring, which monitors and alerts you to changes in all three credit reports but not your score. In addition, you will get unlimited access to your Equifax credit report and $1,000,000 in ID theft insurance. The cost is $12.95 a month for this service.

TransUnion also has their equivalent of 3-in-1 credit monitoring service that comes at a price of $14.95 a month. Experian has a similar deal.

Verdict – One of the things that I really like about the Equifax ScoreWatch™ is that you can access your Equifax score twice a year (rather for 60 days). This feature is absent for example in TransUnion’s own credit monitoring service. However, I suspect that that those who are really interested in monitoring their credit would want to do so with all three credit bureaus rather than just one. If that is the case, then I would suggest you try the Equifax Credit Watch™ Gold with 3-in-1 Monitoring. It cost a bit more ($12.95 a month rather $9.95) and you cannot see your scores. But for credit monitoring purposes, it is cheaper than the alternatives offered by TransUnion and Experian.

What Happens to Joint Accounts or Authorized Users When Main Card Holder Files For Bankruptcy?

Mr Credit Card — Fri, 26 Jun 2009 14:39:34 +0000

Here is a question from a reader:

Hi,
I have a credit card which I’ve had for years. When my daughter, at age 17, went to college, I got her a card for emergencies. She didn’t sign for it and we didn’t ask for joint account. She used it a few times but since had paid it off. I went through a financial struggle and used the card myself to the limit and now am in BK13. They shifted the debt to her, changed the name on the account and sent it to collections. It now shows on her credit report and we have never given them her SSN. I don’t understand? Can this be?

Mr Donald Harless Jr

Answer – Donald, though you think it is a joint account, it may well be that your daughter is just an authorized user. But I’ll try to explain the consequences of your situation.

If she is just an authorized user

Yes – your delinquent account can be reported in your daughter’s credit report – Even if your daughter is an authorized user, the credit card company can report on a delinquent account on your credit report and her credit scores will be affected. It works positively when she was trying to build her credit but will work negatively against here. Yes, your daughter did not sign anything, there is no federal law prohibiting the credit bureaus from not reporting such measures

How to find out if she is just an authorized user or a joint account holder with you?

I suggest you ask your daughter to get a copy of her three credit reports (from Experian, Equifax and TransUnion) and thoroughly comb through them. If she is just an authorized user, it will show up as an “A”. If it is a joint account, then it will show up as “J”.

If she is an authorized user, then this are your action steps

Do not pay anything to the collection agencies – Even though your bankruptcy filing, or late payment or whatever shows up in your daughter’s credit report, paying off those debt WILL NOT improve her credit score because it is already classified as delinquent. Even if she helps you pay it off, the account will remain on her credit report for seven years. Secondly, she is absolutely under no obligation to pay it off if she is an authorized user.

Challenge the account under question – Write to the credit bureaus and challenge the account. If the credit bureaus cannot validate this within 30 days, then they would have to remove the account.

Using Validation against collection agencies – If your daughter ever answer a call from the collection agencies, simply ask for a name and an address and then HANG UP. Write to them requesting a validation of the debt. Many times, they are unable to validate it and they will magically disappear! Send all correspondence using “certified mail” and keep all records.

(having said that, if you are in the middle of filing for chapter 13, you will be on “automatic stay” which means your creditors are not allowed to contact you)

But what if she is indeed a joint account holder

Since you are filing under chapter 13, by definition, you and your attorney will have to present a payment plan to your creditors. You will have to present a plan to the judge and you will also have what is called a 341 meeting with your creditors. This is when your attorneys should all these sorted out.

I do not know how long you are in the process of your chapter 13 filing, but depending on your state laws, it may or may not be too late to remove your daughter as a joint account holder. And since the account has been sold to a collection agency, it may probably be too late.

But if your daughter is indeed a joint account holder, then your bankruptcy attorney should know about this and have all this sorted because the debt will not be wiped out and you will have to negotiate your payment plan. In this case, you best bet is to consult your BK attorney.

To sum up – There is a higher chance of removing the credit item from your daughter’s credit report if she is an authorized user. But if she is a joint account holder, that is a different story. Her credit report will take a big hit. Best to consult your BK attorney.

Can I Get Satellite TV With Bad Credit?

Mr Credit Card — Sat, 20 Jun 2009 10:26:02 +0000

I recently got the following question from a reader:

Mr Credit Card

I know this is not really a credit card related question but recently, I got turned down by Direct TV because of my credit. What do I need to do to get a cable tv or satellite tv provider?

To be honest, I was not sure if I was the best person to answer this. But I know the person from Satellite TV Guru and I asked if he could kindly answer this question. He went further by telling us how to get a satellite tv even when you have bad credit (just goes to show how important having a good credit score is). Below is his answer and post.

We’ve all seen the commercials, Satellite TV companies offering great deals that can save your family hundreds of dollars a year over cable. One thing that isn’t really talked about however is that you need to pass a credit check in order to get Dish Network and DirecTV. Although most people can pass this credit check without an issue, there is an alternative for those of you who may have bad credit or no credit. Unlike a mortgage or car loan this credit check is very easy to pass.

If you can’t pass the credit check you’re not out of luck. A pre-paid plan for satellite service is offered by Dish Network. The fact that you don’t have to sign a contract and you dont receive a monthly bill are two benefits of Dish Network’s pre-paid option. Generally you have to give Dish Network a credit card and social security number if you sign a contract, but this plan eliminates having to do that. Dish Network pre-paid works a lot like a pre-paid credit card. You buy a pre-paid card at Radio Shack or your local electronics store and simply pay for the service in advance. You then use the pre-paid card to
activate your service over the phone.

This allows you to pre-pay for the following Dish Network packages:

DishFAMILY

America’s Top 100

America’s Top 200

America’s Top 250

DishLATINO

DishLATINO Plus

DishLATINO Dos

DishLATINO Max

HBO, Cinemax, Showtime and Starz can also be pre-paid for and included with your programming package.

This solution is also ideal If you have a second home or vacation home that you only spend a few months a year at.

Dish Network pre-paid does has some minor issues to work around for some people. Most importantly you need to make sure you have hardware compatible with the pre-paid service. Radio Shack offers the special hardware that’s required for the service to work.

For those who can’t get satellite service through a contract because of your credit (or lack there of) this is a decent alternative. When you factor in the cost of the hardware the service is more expensive than signing a contract. If you don’t want to have to deal with the pre-paid service you can always try to repair your credit and re-apply for service in a few months.

Weekend Carnival Round Up

I got involved in some carnivals this week. Check them out for more interesting money post.

I had my post listed as Editor’s Choice at the Carnival of Personal Finance at Living Almost Large.

Carnival of Debt Reduction was hosted at ABC of Investing.

Carnival of Money Stories at Not The Jet Set.

Carnival of Everything About Personal Finance at Nil2Million.com.

Have a Great Weekend.

Which Credit Monitoring Service Updates Most Frequently?

Mr Credit Card — Fri, 12 Jun 2009 15:31:26 +0000

I am trying to find a credit monitoring service that will give me unlimited daily access to reports and scores from all 3 credit reporting companies. Many do not allow you to get up-to-date information on a daily basis, only monthly or quarterly, or just monitor the three reports. Credit scores can change often and I would like to be able to watch changes regularly.

Bob

Thanks for your question Bob. It is valuable to regularly track your credit scores and reports. However, to do that effectively, you will need to have the following information:

You have more than one credit score:

Everyone who has a credit history has at least four main credit scores, and three major credit reports. (You actually have more than that, but the vast majority of lenders use one of the four credit scores and three main credit reports for lending decisions, so we will concentrate on those).

To put it simply, each of the three main credit bureaus (Equifax, TransUnion and Experian) keeps a credit report on you, and they have their own credit scoring system. FICO also keeps a credit score for you, but not an individual credit report.

The problem that you are going to run into when you try to track your credit score is simple: Which credit score is the most important for you to track?

Your FICO score is probably the most important score for you to track, but truthfully there are just as many lenders who use credit scores from one of the three credit bureaus when they make lending decisions.

Which credit score to use in a credit check is completely up to the lender. It used to be done by location because the lender would check the credit bureau that was closest to them. However, with the advent of the internet, it became easier and more cost effective to check people’s credit reports at any of the bureaus. So today, it’s really anyone’s guess which credit bureau (or FICO) a lender will check before they issue you a loan.

Whew. So, with all that said, what should you do if you just want to monitor your credit scores and reports? From your question, I understand that you also want to be able to track your scores in real time, or as close to that as you can get.

The bad news is, there are no credit score monitoring services that update hourly, or even daily. There are services that advertise “constant” tracking of your credit score – be careful of those. The ones that I have seen advertised don’t even use one of your four main credit scores, but rather, a replication of them, and they don’t always disclose which credit bureau they get their information from.

Your best bet is to go straight to the source(s) – purchase your monitoring directly from one of the three main credit bureaus or FICO because they will have the most up-to-date information. Be sure that you read the fine print from them too though. Each program offered is different, and updates differently.

If you want the most complete picture of your credit, you should track all three of your credit reports and scores from the three main credit bureaus, plus your FICO score.

To simplify all of the programs out there, and make an individual suggestion for you, I recommend a combination of True Credit from Transunion, and Score Watch from FICO.

Features of True Credit:

True Credit costs about $15 a month, and gives you access to all three credit reports, and all three credit scores. It updates monthly – which unfortunately is about the best you’re going to get in terms of real-time information. The only negative of True Credit (and I have used it personally) is that they frequently show distracting “targeted” advertising along with your scores and reports.

Features of Score Watch from FICO –

Score Watch gives you access to your Equifax credit report (which you will not need if you purchase True Credit – you will have a bit of an overlap.) However, it gives you weekly updates and tracking of your FICO score. It costs around $9 / month.

So, based off of this individual recommendation, for around $24 a month, you can get monthly monitoring of all three credit bureau’s reports and scores, plus weekly monitoring of your FICO score.

That’s the most comprehensive, cheapest option available right now. It is my hope that soon we will be able to have real-time tracking of FICO scores, and our three-credit bureau reports and scores. Right now though, that’s just not available.

Thanks for your question!

Will My Credit Score Go Down Because I Close My Credit Card?

Mr Credit Card — Mon, 01 Jun 2009 15:20:09 +0000

Here’s a question from a reader:

I have a orchard credit card and a premiere credit card. Orchard’s service, professionalism and ease of paying on line is the best. However, Premiere credit card has outrageous charges, they charge when you pay on line etc. I want to cancel my premiere card. If I cancel the card would that hurt my credit score. Please advise.

Mr Robert Strauss

Answer – Hey Robert – As a general rule, every time you close a credit card, your score should go down (could be a lot or just a little). It depends on a few factors.

How long has your account been open – Your length of credit history is one component of your credit score. Hence, as a general rule, you do not want to close your oldest account. But rather, you should be better off closing a newer account.

What is your credit line and limits? – Your credit utilization is an important component of your credit score. Credit utilization is how much credit you are using versus how much credit is available to you. The lower the utilization ratio, the better your score will (all else equal) because you will be perceived to be less of a risk versus someone who is maxed out! So, other than how long you have had the card, your credit line plays an important role as well. You generally do not want to close an account with a large credit line relatively to your other credit sources.

Here’s a visual breakdown of what is important for your FICO score

Are the accounts closed by you or did the credit card issuer cut your lines – An account that is closed by you is looked upon better than if your credit lines got cut

Your situation – Given your situation it appears you are in the phase of rebuilding your credit (why else would you have an Orchard Bank and a First Premier Bank credit card. You have not told me (us) what your credit lines are and I suspect they are not in the 5 figures. I also think you do not have these for years and years because who would want to pay those annual fees on these cards?

So here’s what I’ll do if I were you given what I think are your circumstances.

Cancel your First Premier Bank Card – since you prefer Orchard and the fact that you have to pay annual fees for the First Premier Card.

Your score may take a slight hit – But I suspect it will not be much since I do not think you have a very credit line with First Premier, this shouldn’t be too bad

Do not use more than 30% of your available credit lines – It’s no good to have a high credit utilization ratio. So never charge more than 30% of what your credit lines are on your card.

Pay off your bills fully every month – This is the quickest way to a higher score

Make sure you pay on time too – Looks like you pay through the internet and you are net savvy so I think this should be a piece of cake for you. But I cannot stress this enough for our readers – Paying on time is so important

Do all these and within one year, Orchard Bank should upgrade your card to a no annual fee one. If not, your score should improve sufficiently for you to get one from someone like Capital One or Citi.

Should You Use Your Credit Cards If You Want To Raise Your Credit Score?

Mr Credit Card — Sat, 25 Apr 2009 18:15:26 +0000

What is the best way to raise your credit score when you don’t want to use your credit cards? A reader, Kate, left us a comment with this question:

Thanks for such a wonderfully informative post. I’m on the flip side of this situation– I hardly ever use my credit cards because I want to stay debt free, but I have been hearing a lot of reports recently about credit card companies closing accounts that are inactive for several months.

I never realized that not using my credit card and keeping a zero balance could hurt my credit score, but it seems that it might, so should I make small purchases once a month and just pay it off at the end of each month? Also, does it matter if I purchase something as small as a pack of gum or does the credit card company want you to spend a specific dollar amount each month?

It looks like that in today’s credit situation, The Power of Small reigns supreme– that it’s the little things we do that really matter. Correct?

Kate,

You are exactly right. Making small purchases on each of your credit cards and then paying the balance off each month is the best way to raise your credit score.

Alternately, you could consider using a cash back credit card. If you took a cash back (or rewards card) and applied some of your regular bills to it each month, then you would be earning a little bit of money back on your monthly expenses and you would raise your credit score in the process.

Either way, it takes regular use of credit to build your credit score. Here are a few guidelines as you begin to do this:

Don’t go into debt - Yes, you need to use your credit cards each month, but you should not ever, ever carry a balance. Carrying a balance on anything, especially a large balance, hurts your credit score. Lenders want to see that you have credit and don’t use it. Somewhat unfairly, they also want a good track record of timely payments. So, you compromise. Either use your card for one trip to the grocery and pay the balance, or use it for your bills and earn rewards. Never charge more than you can pay back in a month.

That is why I suggest using rewards cards to pay your bills. It means that your budget will not change, and you will get a small percentage of your money back.

How much should you charge each month? If you want to raise your credit score, you should never use more than 20% of your available credit each month. Even if you are paying the balance in full every time, your credit report still shows how much has been charged in that month. Even with rewards cards, do not charge more than 20% of your available credit limit. (This is assuming your aim is to raise your credit score, and not to get maximum rewards.) If you have a card with a $1,000 limit, do not charge more than $200 a month on it.

You can also consider checking your credit reports: It is shocking how common credit report inaccuracies are. If you are worried about your credit score, then a good place to begin is by taking a look at your credit reports. Just do a quick check through to make sure that all of your accounts are reporting like they should. It won’t do you any good to use your credit cards if the accounts aren’t being reported correctly to the credit bureaus. You can get one free copy of all three of your credit reports per year by visiting Annual Credit Report.com.

If you are actively trying to raise your credit score it may make sense to monitor your credit score and your credit reports a little more often than once a year. You can visit MyFICO.com to see your credit score, and all three of the credit bureaus sell services that let you see your credit reports as often as you want to.

Thanks for your question!

Have a question for us? Leave a comment below!

Keep Reading:

Skipping Credit Card Payments and Getting Late Marks Removed From Your Credit Report

Mr Credit Card — Fri, 24 Apr 2009 17:18:23 +0000

What happens when you are past due on your credit card accounts, and you want to have the late notices removed from your credit reports? One of our readers sent in this question:

I have missed four months of credit card payments on a high interest, high debt
($10,000) credit card. If I can payoff the entire debt next month (10,000
dollars), will the credit card company reverse any negative credit reporting on
me? What will my credit show?

Brandy

Brandy, you are in an excellent position to negotiate with your credit card company. Because you are so past due, your credit card company is beginning to lose hope that you will pay. Because you can afford to pay the balance in full next month, all the negotiating power is yours. Your credit card company will definitely negotiate with you to pay down a large balance immediately – especially when the account is so past due.

When you call to pay the balance in full, you can negotiate with your credit card company for some (or all) of the following things:

To remove the late marks from your credit report - More on this in a minute, since it was your original question.
To remove every single one of the late, or over limit fees on your account.
You could possibly have the account re-opened, if it’s been closed. That is not a guarantee, just a possibility, and it will depend on the bank’s policy.
If your interest rate was raised because you did not make payments (this is standard procedure) then you can negotiate to have your interest rate reduced, and the balance re-calculated from the point that your interest rate went up. Again, this depends on the bank’s policy, but it is worth asking for because it could save you quite a bit of money.

You could also offer your credit card company a settlement for a reduced amount – Instead of negotiating away all of the fees and extra interest on the card, you could simply call and offer them $7,000 to pay off the card instead of $10,000. They will negotiate with you because you are so past due, and because you can make a large lump payment.

Now, there is a difference between having the fees and interest removed, and just doing a settlement as far as your credit report is concerned. Namely that having the fees and interest removed from your account will not show up on your credit report as a debt settlement.

If you actually offer a lesser amount on your debt and do a settlement with your credit card company, then your credit account will be noted that way and it could lower your credit score a little – even if you removed the previous late notices.

Getting the late notices removed from your credit report:

You will need to attack this problem in two ways.

#1: When you call to pay your balance in full, tell the representative that you can pay the balance in full, but that they must be willing to remove the prior four months worth of late notices before you do. You must have proof in writing that they are going to do this, or it will most likely never happen!

Get them to fax you an agreement, or send you a letter in the mail that states what’s going on: That you agree to pay X amount, and they agree to remove all of the late notices on your credit report. If it’s not in writing, it’s not real, so don’t make a payment before you do have something in writing from your bank.

Additionally, ask the representative you speak to to note your account for you. Make sure that somewhere on your account it is noted that those late reports are to be removed. That way, no matter who you call and speak to, the next representative will know what’s going on.

#2: Check your credit reports, and challenge as needed

Unfortunately, there is still a possibility that the late notices will not be removed. If that happens, all you need to do is challenge the late reports through all three credit bureaus. That will be as simple as sending in the letter you got from your bank stating that they would remove the late notes, and proof of your payment to the bank to show you kept your end of the bargain.