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As more Americans find themselves with unpaid medical bills, debt collectors are going great lengths, such as linked-in requests, to collect. About 43 million Americans have unpaid medical debt, typically from out-of-network doctors, hospital stays or ambulance rides. It only … Continue reading →
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FOR years, David Hall has warned that a tsunami of home repossessions was imminent. The reason, the Irish Mortgage Holders boss insists, is because vulture funds are going to find it much easier to boot people in mortgage arrears out … Continue reading →
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WASHINGTON (AP) — Consumer borrowing slowed in June to the smallest increase in three months as a jump in auto loans and student loans was offset by a big drop in borrowing on credit cards. Overall consumer borrowing increased by … Continue reading →
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One of the more common questions I receive from consumers is how they can best establish credit or improve their credit scores. It’s a hard question to answer without seeing their credit reports. There are many paths to poor credit scores so the advice isn’t as simple as one universal answer. The answer is going to vary based on each consumer’s individual credit situation.
As to the “how can I establish credit” question, that one is certainly easier to answer because there is a finite number of options to choose from when building or rebuilding a credit report and a credit score. My favorite option is the same one my parents used some 33 years ago when I was 18 years old and headed off to college. My father added me as an authorized user on one of his credit cards.
If you’re not familiar with authorized users, you can read more about them here. Or, I can save you some time; an authorized user is someone who is added to the credit card account of another person. The authorized user has the same spending permissions as the primary cardholder, but without any of the payment or debt liability. Almost all large credit card issuers will allow their primary credit card holders to add authorized users to their accounts.
The upside to being an authorized user is most credit card issuers will report the history of the credit card account to your three credit reports as maintained by Equifax, Experian and TransUnion. This means not only will lenders see the account on your credit reports but, also, credit scoring systems will consider it when calculating your credit scores.
Authorized Users and Credit Scoring
All commonly used credit scoring systems will consider an authorized user account or “tradeline” as a scored attribute. In English that means if you’re an authorized user on someone else’s credit card account and that account is reported or “furnished” to the three consumer credit reporting agencies, and it ends up on your credit reports, then it will be considered in the calculation of your credit score.
In most scenarios an authorized user credit card account is treated no differently than if you were the primary cardholder. The balance, the credit limit, the age of the account, and the account’s payment history would be treated no differently. If all of those credit card attributes say good things about you, the card will likely help your credit scores. And conversely, if the card is mismanaged then you too will likely suffer a credit score impact, just like the primary cardholder.
There was a time many years ago when authorized users were being abused as a credit repair strategy to temporarily boost consumer credit scores. The response…in June of 2007 the primarily used credit scoring company announced that they would no longer count authorized user accounts in their upcoming credit scoring system. The reason they gave was that by no longer counting authorized user accounts in the calculation of a credit score they would be protecting lenders from the practice of piggybacking on someone else’s credit card account.
Thankfully the company reconsidered their position after consulting with the Federal Reserve Board and the Federal Trade Commission. Instead of simply ignoring authorized user tradelines, the company instead implemented logic into their future credit scoring models that reduced the potential impact from piggybacking. [1] The specifics as to the exact treatment of authorized user tradelines by these newer credit scoring systems have never been publicly disclosed.
How Authorized User Tradelines are Helpful
Assuming an authorized user tradeline makes its way to your credit reports, it can be helpful in a variety of ways, which I alluded to above. First and foremost, lenders like to see positive information on credit reports, and that has nothing to do with your credit scores.
If the authorized user account is old, it will help to increase your average age of accounts, which is an important factor in your credit scores. If the authorized user account has a clean payment history, that is helpful to your credit scores. And, maybe most importantly, if the authorized user account has a low balance relative to the credit limit, that is very helpful to your credit scores.
Really the only way an authorized user account can hurt your credit scores is if you choose to associate yourself with a poorly managed account. For example, you’d never want to have your name added to an account that had a history of late payments. And, you’d never want to associate your name with an account that has a large balance relative to the credit limit. These are score damaging qualities of a tradeline, which would certainly point your credit scores in the wrong direction.
[1] From the Written Statement of Fair Isaac Corporation before the U.S. House of Representatives Committee on Financial Services Subcommittee on Oversight and Investigations.
John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of The Ulzheimer Group and the author of four books about consumer credit. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has 27+ years of experience in the consumer credit industry, has served as a credit expert witness in more than 370 lawsuits, and has been qualified to testify in both Federal and State courts on the topic of consumer credit. John serves as a guest lecturer at The University of Georgia and Emory University’s School of Law.
Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of Tradeline Supply Company, LLC.
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A&B Abstract: This blog post is part two of a five-part series examining the Consumer Financial Protection Bureau’s (the “CFPB” or “Bureau”) proposed rule amending Regulation F (the “Proposed Rule”), which implements the Fair Debt Collection Practices Act (“FDCPA”) to prescribe … Continue reading →
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Sometimes it’s the little things in life that can make all the difference.
A small ding to your credit score can drop it just enough from being in the excellent credit score range to the good score range. That can be enough to cause lenders to charge you higher interest rates, costing you money that you might otherwise save without the small nick on your credit score.
Inquiries, or new credit, account for about 10 percent of a FICO credit score. While that isn’t much when compared to payment history accounting for 35 percent of a FICO score, a credit score drop of up to 10 percent for having too many lenders look at your credit score can be enough to cost you real money in the long run.
There are two types of inquiries — hard and soft — and the first will hurt a credit score and the latter won’t. Knowing the difference can help you know when to act so that an inquiry doesn’t hurt your score, or when you don’t have to worry about it.
Hard inquiry defined
An example of a hard hard inquiry is when you apply for a credit card and the issuer “pulls” your credit report from one of the three major credit bureaus.
The hard inquiry may lower your score up to five points, depending on the rest of your credit profile. Going months between credit inquiries can have less of an impact than having a bunch at the same time.
Applying for a mortgage is another hard inquiry. The FICO score allows mortgage rate shopping, so applying with four different mortgage lenders in 45 days is counted as only one hard inquiry.
Hard inquires stay on a credit report for two years, but the FICO score ignores them after 12 months. Whatever your credit score, potential lenders will look at you as risky if you have too many inquiries over a short period. For people with a short credit history, this can be especially troublesome.
What’s a soft inquiry?
Soft inquiries come in many forms, and none should hurt a credit score.
Checking your own credit report is a soft inquiry. It doesn’t lower your credit score, as some people think it does, and in fact is a good thing to do to make sure your score is good and the information on your credit report is accurate. Consumers can check their credit reports for free once a year from each of the three major credit bureaus.
Creditors you already work with may do soft inquiries by checking your credit report to see if you’re still creditworthy. Credit card companies do this monthly.
If you get preapproved credit card offers in the mail, those are soft inquiries that don’t affect your score.
If you’ve given a potential employer permission to view your credit report as part of a background check, it’s also a soft inquiry that doesn’t affect a credit score.
What you can do
If you want to avoid a hard credit inquiry that could cause your credit score to drop, the simple solution is to not apply for new credit. But that isn’t always practical, such as if you want to find a better credit card or want to buy a home or car.
There are some money management steps you can take, however.
Start by not applying for credit cards that you know you won’t qualify for. Knowing where your score is on the credit score range can help you decide if applying for a card with some of the best travel rewards, for example, is worthwhile since many such cards require having excellent credit. Applying for a credit card that you probably won’t be approved for results in a hard inquiry and a rejection, which can also hurt your score.
Some credit card issuers target people with bad credit. If that’s you, be sure to read the fine print and make sure it’s a card you can live with. It may not have all of the features you want, but over time and by paying the bill on time, you can improve your credit score and move up to a better credit card.
These issuers may advertise that they won’t run a hard credit check and will base their decision on other factors, such as your income and employment history.
If you have good or excellent credit, a hard inquiry shouldn’t have much of an impact, if any, on your credit score. Keep your score high by paying your bills on time, don’t use more than 30 percent of the credit available to you, and have a good mix of credit.
When checking your credit score, look for errors and dispute them with the credit bureaus. Your vigilance should pay off with a better credit score and eventually should get you better credit terms. With that, a hard credit inquiry won’t hurt so much, if at all.
The post Soft Vs. Hard Inquiry – What’s the Difference? appeared first on Better Credit Blog | Credit Help For Bad Credit.
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Paying your bills on time, not maxing out your credit cards, and having a good track record of managing debt responsibly are some basic and obvious things that affect a credit score.
Some other financial transactions, however, don’t hurt it at all. You may even be surprised by them.
Here are seven things that don’t affect a credit score, which is a score worth improving so you’ll have access to the best loan rates and terms:
Income
Creditors and lenders obviously want you to have an income, and information about your employer may be listed on your credit report, but your actual income isn’t reported as part of a credit score.
Your income will be used to decide how much you can afford to borrow, but a high salary won’t boost your credit score and a low salary won’t hurt it. How you manage your bills is what you should be concentrating on to improve your credit score.
Overdrafts
Overdrawing your bank accounts can be costly, but they won’t hurt your credit score — as long as you clear them before they go to collections.
If your checking account remains overdrawn for weeks and the bank sends it to a collection agency, then expect your credit score to be dinged. It’s not the overdraft account that’s causing the credit score to drop, but the fact that it went to a debt collection agency.
What’s more likely to happen is with your information ending up in ChexSystems, a consumer reporting agency that collects information on closed checking and savings accounts. If you overdraw your bank accounts often, you could be flagged as a problem and have difficulty opening new accounts or writing checks.
Missed insurance payments
A credit score can be used by an insurance company to calculate your insurance premium. But your insurer won’t report your insurance premium payments — whether on time or late — to credit bureaus.
If you miss just one insurance payment, your insurance company could cancel the policy entirely or until payment is made. But it’s unlikely to send it to a collection agency.
Checking your own credit
You can check your credit report or score as much as you want without being penalized for it. Start at AnnualCreditReport.com for a free report each year from three of the major credit reporting agencies.
If a lender checks your credit score, that will likely hurt a credit score, though only a little and not for long. That’s known as a “hard inquiry” that can drop a score by five points and can stay on your credit report for two years. Too many queries in a short time could drop it a little more. New credit determines 10 percent of a FICO credit score.
Checking your own credit is known as a “soft inquiry” and has no impact on your score. Why would you want to check it? To catch errors or potential fraud before applying for a loan.
Credit counseling
If you’ve sought help from a credit counselor to help manage your credit card payments, it may show up on your credit report. It won’t, however, hurt your credit score. If you’re put on a repayment plan, that could be part of your credit report but it won’t change your score.
As long as your creditor is getting your payments on time — either through you or the credit counselor — then the fact that you’re getting credit counseling won’t hurt your score. But if the payments arrive late, then expect to see your credit score drop.
Marriage
If your partner has a low credit score, it won’t affect yours when you marry them. Credit histories aren’t merged at marriage. Each person retains their own credit score, and having joint accounts together won’t affect that.
A joint account will, however, affect each person’s credit profile on their own credit score. If the wife doesn’t pay the credit card bill on time that the couple uses together, it will hurt both of their scores. The same goes for buying a house together or filing taxes jointly and any problems in those areas.
Bank account balances
Credit scores are a reflection of how you manage debt. Checking, savings and other such bank accounts that are assets aren’t factored into a credit score.
Liabilities such as credit card balances are considered. Only your creditors actively report to the credit bureaus.
Having a rotating balance on a credit card can hurt a score, especially if you use too much of the credit available to you. The higher your credit utilization ratio — your credit card balance divided by your credit limit — the more it can drop a credit score. Keeping it below 30 percent is best.
The post 7 Surprising Things That Won’t Affect Your Credit Score appeared first on Better Credit Blog | Credit Help For Bad Credit.
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