The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.
This week’s question: I have received a settlement offer on an old credit card debt from years ago when I was out of work. Would it be better to let it fall off after the six-year statute in Arizona? I am in great financial health and this is the only bad mark on my credit.
Based on the question, it appears that you are taking extra care to make the best decision regarding your credit health. For that, I applaud your efforts to research the facts. Sometimes an offer to settle a debt can lead to a hasty decision that may not always be best. Let’s take a moment to examine all of the elements to consider before rendering a decision that will impact your financial future, one way or another.
Deal or No Deal
First, there’s the settlement itself. Settling your account is commonly viewed by lenders as being less favorable than paying the balance in full. If reported accurately following the settlement, the account status would appear as “settled for less than the full balance” on your credit report. When it comes to the credit score impact of settling or paying a collection account, the answer depends on the scoring model being used. More recent versions of FICO® and VantageScore® won’t factor collection accounts that have a zero balance. That seems like great news, but some lenders use older versions when reviewing loan applications for approval. This is most commonly the case when applying for a mortgage. In those situations, your credit score will not likely experience the same lift.
Running Out the Clock
Apart from the settlement, there’s the matter of the account’s age. We have addressed the topic of the statute of limitations and time-barred debts in previous posts, but I can’t place enough emphasis on the wild card variable that involves the debt collector’s decision to escalate the account. Having worked as a debt collector in the past, I am quite familiar with the process of evaluating unpaid accounts for escalation before the clock runs out. In Arizona, the timer starts when the account charges off. That means the debt collector is now asking that you pay the entire balance in full. For that specific state, you are correct that the statute of limitations is six years.
Will They or Won’t They
If they know where you live and work, and if they determine that the unpaid balance of the account is sufficient enough, they may decide that it is worth the effort to file a case in civil court in pursuit of a judgment against you for the amount of the debt plus interest and court costs. Again, this is also driven by how much time is left on the clock. If the court decides in their favor, they could proceed to recover the balance through legal processes allowed in your state. In Arizona, for example, wage garnishment is allowed at one-quarter of your non-exempt weekly paycheck or an amount of your weekly earnings that are greater than 30 times the federal minimum wage, whichever is the lessor of the two. There are other factors influencing wage garnishment in Arizona, and the rules for other states vary, so it’s always a good idea to check with an attorney to confirm what might directly impact your situation.
Ultimately, the decision on the next steps rests in your hands, but whatever you decide should leave no room for surprises. That’s why I would recommend spending a little time consulting a nonprofit credit counselor for a more detailed and personalized review of your situation. Armed with their advice and what you have learned through your own research, you would be in a much better position to make the most informed choice for yourself. Good luck with your next steps!
Myths about credit, unfortunately, are extremely common, even among people who purport to repair credit. We’ve previously compiled a list of common credit myths, which you can find in our Knowledge Center.
In this post, we’re going to focus on the top three credit myths that just won’t seem to go away, according to credit expert John Ulzheimer in a Credit Countdown video on the topic. Check out the video version at the end of this post.
Myth 1: Your revolving utilization ratio is worth 30% of your credit score.
While the general category of how much debt you owe does contribute 30% of your FICO score, the specific metrics regarding revolving utilization are just part of that category, not the whole thing. There are several other metrics included in this category, which FICO lists on their website. These include:
The total amount you owe on all of your credit accounts. The amounts you owe on different types of accounts, such as installment loans and credit cards. The number of your accounts that have balances on them. The ratio of how much you still owe on your installment accounts, such as auto loans and student loans.
Therefore, your revolving utilization must necessarily be worth less than 30% of your credit score, although it is true that it is a highly valuable metric.
Myth 2: Closing an old credit card means the age of the card no longer counts toward your credit score.
Prominent sources in the credit arena often advise consumers not to close their oldest credit cards, claiming that this will cause consumers to lose the benefit of the card’s age. In theory, this idea makes sense because your credit age is worth 15% of your credit score and it is directly connected to your payment history, which is worth an additional 35% of your score.
However, the problem with this advice is that you actually do not lose the age of a credit card once you close the account. In fact, according to John, credit cards continue to increase in age and contribute to your average age of accounts even after they have been closed.
Still, it is important to remember that closing a credit card is not completely free of consequence. When you close a credit card account, you no longer get the benefit of the unused credit limit that was associated with the account, which was likely helping your credit score.
Myth 3: Employers can check your credit scores.
In truth, this myth likely exists because employers can check your credit reports, but credit reports and credit scores are not the same thing. Your credit report contains information about your credit accounts, while your credit score is a three-digit number that represents how creditworthy you are deemed to be by the credit scoring model.
Furthermore, the credit reports that employers receive are different from the versions that are provided to lenders, and these credit reports do not come with credit scores.
If there are other credit myths you think we should cover, leave a comment on this article or the accompanying video on our YouTube channel!
Some folks in the field of credit repair claim that hard inquiries can be “bumped” or “chopped” off of your credit report through the processes of inquiry “bumpage” and “choppage.”
What do these terms mean, and do they actually work?
Credit expert John Ulzheimer, who has worked in the credit industry for 30 years, gave us his take on this trend in a Credit Countdown video on our YouTube Channel. We’ve outlined the main points of the video for you in the article below.
How Much Do Inquiries Impact Your Credit Score in the First Place?
Credit scores factor in five categories of information when calculating your score, and they are not all given equal weight.
The most important piece of the credit score pie chart is your payment history, or in other words, your track record of making your payments on time. This factor accounts for 35% of your FICO credit score.
The next largest piece is how much debt you owe, which relies heavily on your revolving utilization metrics, among other factors. Your debt comprises 30% of your credit score.
Your length of credit history, AKA your credit age, represents 15% of your score, while credit mix, or your diversity of types of credit accounts, makes up 10%.
Finally, the last 10% of your credit score comes down to the new credit category, which includes hard inquiries.
For this reason, focusing on trying to remove inquiries from your credit report usually does not make sense as a credit improvement strategy. Even if you are 100% successful in removing all of the hard inquiries that may be bringing down your credit score, you will only move the needle a small amount relative to what you could accomplish by focusing on the more important credit score factors.
What Is Inquiry Bumpage?
The concept behind credit inquiry “bumpage” is the idea that the credit bureaus only have a certain amount of space allocated for each consumer’s credit report. Therefore, the theory goes, if you can fill that limited amount of space with new information, you can “bump” the oldest inquiries off of your credit report.
What Is Inquiry Choppage?
Inquiry “choppage” is theoretically what happens when the soft inquiries get “chopped” or removed from your credit report before the hard inquiries can be “bumped” off.
Do Inquiry Bumpage and Choppage Really Work?
According to John Ulzheimer, aside from the speculation and marketing tactics you may see in credit repair space online, there is no reason to believe that bumpage and choppage even happen in the first place, let alone that they are effective strategies to help get hard inquiries removed from your credit report.
Better Ways to Increase Your Credit Score
While the methods of bumpage and choppage are not recommended when trying to improve your credit, fortunately, there are more legitimate and effective things you can try.
Remove inaccurate derogatory information. If there is damaging information on your credit report that is not supposed to be there, filing a dispute to get it removed or corrected should be your top priority. Pay your bills on time. Since your payment history has the greatest amount of influence on your credit score, getting more on-time payments onto your credit report will go a long way toward attaining a higher credit score. Maintain low balances on your credit cards. Factors having to do with the amount of debt you owe also play a sizeable role in determining your credit score, and your credit card utilization ratios are the key metrics in this category. The lower your credit card balances are, the higher your credit score can climb. Limit the number of accounts that have balances on your credit report. In addition to utilization ratios, credit scoring models also consider how many of your accounts have balances on them. Even if the balances are small, if you have too many accounts with balances, this can bring down your credit score. Increase your credit age. All you have to do to increase your credit age is wait patiently for your accounts to get older! Plus, try some of the other credit tips we’ve published in our Knowledge Center, such as our list of easy credit hacks that will actually get you results.
The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.
This week’s question: I took on too much debt and went without a job for 23 months. I am now employed and currently paying off my last, charged-off credit card. Should I open a new line of credit or just continue to pay my debt to rebuild my credit?
Getting back on your feet after a period of unemployment and high debt is a huge accomplishment. Rebuilding your credit depends on multiple factors and on where you stand with your overall credit and finances. So, in your situation, I recommend doing it all: pay all your bills on time, continue to pay down your debt, and rebuild your credit health with positive account activity and a new line of credit.
As you work to improve your credit, you should know which factors influence your score and learn how to use them to benefit your score. These factors include paying your bills on time, keeping your utilization ratio low, how often you get new credit, the types of credit you have, and for how long you’ve had credit.
Ways to Improve Your Credit
Arguably, the most important thing you can do for your credit is always paying your bills on time. This should become second nature so that you build your credit now and maintain a good score in the future. Then, if you don’t have an active account on your credit files, you could apply for a new credit card in order to generate a positive credit history on your credit reports. One sure way to open a new account is to apply for a secured credit card. Secured credit cards are offered by many banks and have a variety of perks and fees. Apart from looking and acting like any other type of credit card account, the primary differences are that you are approved without a credit check and you need to send a security deposit when you open the account. This deposit typically becomes collateral that establishes your credit limit and it’s returned to you if you close the account or if your account is upgraded to an unsecured credit card.
Be Strategic
Once you have your credit card, use it strategically. This means paying on time and keeping your utilization ratio below 30%. Your utilization ratio is how much of your available credit you are using. So, when you have high credit card debt, you appear at risk of losing control of your financial stability, which brings your score down. That’s why you should continue to pay off your debt in order to reduce your utilization ratio.
The other factors—the age of your credit, the types of credit you have, and how often you use your credit—are also important to a lesser degree. How old your credit is only will improve with time, so be patient. The mix of credit looks at the type of credit you have—credit cards and loans. But, right now, let’s focus on the primary factors. And last but not least, that’s how often you apply for new credit. When you ask for a new credit line, a hard inquiry is generated, and it remains on your report for 24 months. Too many inquiries bring down your score. So, you must be selective and strategic about getting new credit lines.
As you can see, building your score comes down to being strategic about how you use your credit in every transaction. When you have the tools and the right plan to improve how you manage your credit, it becomes easier to make financial decisions that build a stronger credit rating. If you need help with more personalized strategies to work on your credit, you can reach out to an NFCC Certified Financial Counselor.
When you file a credit dispute, there are certain forms and processes that are used in order to resolve the dispute.
To help familiarize you with the credit dispute process, let’s go over:
What these forms are used for When these forms are used The information that is included on these forms
The specific forms that are required depend on which type of dispute you are filing.
Indirect Disputes
The credit bureaus get your credit data from the individual lenders or companies you have accounts with, also known as data furnishers. Some examples of these businesses include financial services companies, banks, credit unions, credit card issuers, and debt collectors.
When you file a credit dispute with the credit reporting agencies rather than contacting the business that is furnishing the disputed data, this is called an indirect dispute, since you are not going directly to the company that is providing the incorrect information.
Automated Consumer Dispute Verification Form (ACDV) or Consumer Dispute Verification Form (CDV)
Indirect disputes involve a form called the Automated Consumer Dispute Verification form (ACDV) or the Consumer Dispute Verification form (CDV). The ACDV is simply the modern digital version of the CDV, which refers to the analog format of the original document on paper.
When you initiate a dispute with a credit bureau, the credit bureau generates an ACDV that contains the information about your dispute.
The credit bureau then sends the completed ACDV form to the data furnisher using a communication system called e-OSCAR.
At this point, the lender furnishing the disputed data investigates the claim, updates the ACDV, and sends the form back to the credit bureau.
Finally, the credit bureau reviews the form, makes the appropriate changes to the consumer’s credit report, and notifies the consumer of the results of the dispute.
Direct Disputes
If you choose to dispute the inaccurate information on your credit report with the furnishing party, that is called a direct dispute, because you are going directly to the lender without involving the credit bureaus.
Automated Universal Dataform (AUD) or Universal Dataform (UDF)
When you make a direct dispute with the furnishing party, the data furnisher should correct the error and fill out an Automated Universal Dataform (AUD) reflecting the correction. The AUD is the automated digital version of the form, which was originally called the Universal Dataform (UDF).
Once the AUD has been prepared, the furnishing party sends it using e-OSCAR to all of the credit bureaus where the error is appearing on your credit report. The data furnisher is obligated to contact each credit bureau to ensure that the error has been removed from all three of your credit reports.
When purchasing tradelines, there are some cases where it is best to get a single tradeline and other cases when multiple tradelines might be more appropriate. To help you decide, we’ve provided some examples for each scenario below.
When to Buy Two or More Tradelines Thin Credit File (Too Few Accounts)
Balance out derogatory accounts with positive tradelines.
Credit scoring models value a mix of several different types of credit accounts, so a thin file with only a few accounts might be limited in what it can achieve. In this case, adding a few tradelines would be ideal because it would help increase the number of accounts in the file.
On the other hand, someone with no credit at all or an extremely thin file can also experience significant benefits from adding one tradeline, since they didn’t have much there to begin with. Of course, more than one tradeline will help even more.
Balancing Out Derogatory Accounts
Accounts that have negative marks such as late payments and collections can really drag down credit. Derogatory accounts need to be outweighed by positive accounts, so one’s credit report should contain at least 2-3 positive tradelines for every negative account. Therefore, multiple tradelines may be necessary to balance out derogatory accounts damaging one’s credit.
Maximizing Results
For those looking to get maximum results, buying several of our best tradelines would be the ideal plan. This becomes increasingly important for people who already have good credit (680 FICO or higher) because it is much more difficult to significantly impact one’s credit report with a file that is already relatively strong.
There is also a point of diminishing returns on tradelines for those with already high credit scores, so situations like this require purchasing the absolute best quality tradelines in order to achieve positive results.
In other instances, the goal may be extremely important and the risks of failing to meet that goal may be significant. In situations where the outcome is very important, we recommend using the maximum strength possible.
Of course, the risk is that there are no guarantees on what the results will be, but at least you can be sure that you received the maximum benefit possible from tradelines. The rest is up to you.
Posting to a Specific Credit Bureau
In time-critical situations, purchasing additional tradelines will help protect against potential non-postings.
If it is important for a tradeline to post to a specific credit bureau, this is a good time to consider purchasing more than one tradeline.
Unfortunately, banks and credit card companies are not always 100% accurate in their reporting process, so while we guarantee that each tradeline will post to at least any two out of the three major credit bureaus, we do not have any control over which of the three bureaus the tradelines will post to.
Because there is always a degree of uncertainty with tradelines, if you are looking to get a tradeline to post to a specific bureau, purchasing extra tradelines will help provide the added security you need.
Important Time-Sensitive Events
Similarly, if something important and time-sensitive is going on that depends on the tradelines posting, the safest bet is to get more than one tradeline. Again, we do offer a money-back guarantee in the event that a non-posting occurs, but the fact is that non-postings do occasionally happen due to inconsistent reporting by the banks.
In time-critical situations, there may not be time to exchange a non-posting tradeline for a new one and wait for the new one to post. If you are counting on tradelines to post within a certain time frame, investing in additional tradelines will help hedge against potential non-postings.
When to Buy One High-Quality Tradeline
It’s usually best to purchase one high-quality tradeline if there are budget constraints.
Budget Constraints
If your budget is constrained to a certain dollar amount, it is usually better to purchase one high-quality tradeline rather than dividing that amount between two tradelines that are not as high in quality.
This is because credit scores consider both your average age of accounts and the age of your oldest account. A single account with lots of age has more potential to increase those numbers, while two accounts with less age may not offer as much improvement or might even dilute the credit file.
Here is a hypothetical example to consider. Let’s say your current average age of accounts is 2 years. If you were to spend the same amount of money in either case, would it be better to buy two tradelines that are both 4 years old, or one tradeline that is 8 years old?
If you decided to buy the two 4-year-old tradelines, this would increase your average age of accounts to about 3 years ([2 + 4 + 4] / 3 = 3.3) and your oldest account would be 4 years old.
On the other hand, if you were to buy one 8-year-old tradeline, this would bump up your average age of accounts to 5 years ([2 + 8] / 2 = 5) and your oldest account would be 8 years old.
In the second scenario, you end up with a higher age for both of these important credit history factors. Be sure to check out our tradeline buyer’s guide and tradeline calculator to help determine the best plan of action for your situation.
Current credit file After adding 2 4-year-old tradelines After adding 1 8-year-old tradeline
Average age of accounts 2 years 3 years 5 years
Age of oldest account 2 years 4 years 8 years
It is more difficult to affect the average age of accounts when there are many accounts, so one high-quality tradeline tends to be the best choice for very thick files.
Extending the Age of Your Oldest Tradeline
The age of the oldest account in your credit file is a very important data point. If the goal is simply to extend the age of the oldest tradeline in the credit report, then of course only one tradeline is needed. The tradeline just needs to be older than the oldest account that is currently on file, but obviously, the more age the better, so we recommend going significantly older.
Very Thick File (15 or More Accounts)
A very thick file with a large number of accounts will “dilute” the power of any tradelines that are added. Since there are so many tradelines already in the file, it will be more difficult to affect the average age of accounts. Therefore, one premium tradeline with a lot of age and a high credit limit will be a better fit for a very thick file, rather than multiple less potent tradelines.
Focusing on Credit Limit
Some consumers are less concerned with the age of the tradelines and more concerned with the credit limit for their specific circumstances. If a high credit limit is the main priority, it will usually make more sense to purchase one tradeline with a high credit limit rather than multiple tradelines that have lower credit limits.
If a high credit limit is the goal, usually one tradeline is enough.
The strategy on this topic may vary depending on what you are trying to accomplish and what your goals are, but in general, if you can accomplish the goal with one tradeline, that would probably be the better option.
Modest Goals
Depending on what a person’s goals are, they may not need to get the maximum results possible. For smaller goals, one tradeline may be all they need. However, it is always best to try to overshoot the goal in order to have some extra insurance in making sure the goal is truly achieved.
No Credit File or an Extremely Thin File
As we mentioned previously, adding a few tradelines to a thin credit file is ideal because it greatly increases the number of accounts in the file.
Adding just one tradeline to a very thin credit file can make a big difference.
However, it’s also important to keep in mind that someone with no prior credit history or an extremely thin file may still find value in buying just one tradeline, since adding one account to a baseline of zero or one existing accounts is still a significant change.
As an example, adding one tradeline to a credit report that previously only had one account in it represents a 100% increase in the number of accounts in the file! This not only adds valuable age and payment history but also impacts the “credit mix” factor in credit scoring.
Key Takeaways on How Many Tradelines to Buy
To summarize when you should consider purchasing a single tradeline versus when you should consider investing in more than one tradeline, we have included the main points of this article in the table below.
When to Buy Two or More Tradelines When to Buy One High-Quality Tradeline
If you have a thin credit file (too few accounts) If you have budget constraints
If you need to balance out derogatory accounts When you want to increase the age of your oldest tradeline
When you want to maximize results If you already have a very thick file (15 or more accounts)
When you need a tradeline to post to a specific credit bureau If you want a high credit limit
If you need a tradeline for an important, time-sensitive event If you have modest goals
If you have no credit file or an extremely thin credit file
If you are wondering how many tradelines you need, remember that the power of tradelines is always going to be relative to your current credit file and it is important to consider what will be the best fit for your specific situation.
In some situations, it may be important to maximize results using multiple powerful tradelines, such as when you are trying to accomplish a major goal or when there are serious hurdles to overcome. In other cases, one good tradeline might be all you need.
Whatever the case may be for you, it is always best to understand how tradelines work first and foremost and avoid making any common mistakes.
In simplest terms, the safest option is always to overshoot your goal and stick with the highest quality tradelines within your budget, and remember that in most cases, age is key. If budget is a big concern, then it’s usually best to just buy one of the highest quality tradelines your budget allows.
What are your thoughts on this article about how many tradelines to buy? We would love to hear your feedback, so leave a comment below!
Using a credit card is easy — you use the card to buy things and then pay the credit card bill.
A credit card can sometimes be difficult, however, when dealing with your credit file.
From a missed payment to a loan that isn’t yours that’s incorrectly listed on your credit report, there are all kinds of ways your credit score can drop.
And not all of them are from something you did wrong.
What Is the Fair Credit Reporting Act?
Consumers have protections under the law regarding their credit reports — which is where credit scores and credit problems are listed for lenders to check before offering you credit.
Errors on a credit report can drop your credit score, making it harder to get a loan, credit card, rent an apartment, or qualify for insurance coverage, among other things.
The main law that protects consumers from credit errors is the Fair Credit Reporting Act, or FCRA.
Your Rights Under The FCRA
Here are some of the rights you have under this law and how to use it to protect your credit:
View Credit Reports
The FCRA entitles you to review your credit file from each of the three main credit bureaus for free once every 12 months.
You can do one check every four months from each of the three — Equifax, Experian, and TransUnion — if you really want to be on top of it.
Start by going to AnnualCreditReport.com to request your credit file online.
Only use that website and don’t use a copycat site that charges fees for what should be a free service.
You’ll need to verify your identity to get online access. You can also request your credit file through an automated phone system or the mail.
The FCRA applies to all consumer reporting agencies.
You can also look at reports from other consumer reporting agencies that collect noncredit information about you.
These include rent payments, insurance claims, employers, and utility companies.
The Consumer Financial Protection Bureau lists the reporting companies and how to request a free report from each.
DISPUTING ERRORS
Getting a credit report in your hands can lead to all sorts of eye-opening concerns. Anything that’s listed as negative should be checked for accuracy. Here are some things to look out for:
Eviction that wasn’t legal. Creditor listed that you didn’t have an account with. Loan default. Wrong name. Wrong address. Wrong Social Security Number. Incorrect loan balance. Closed account reported as open. A loan you didn’t initiate.
Some errors may be simple to resolve and others you may need to do more research on before disputing them to ensure they’re incorrect.
For example, you may not recognize the name of a creditor and assume you don’t have an account with them. But it may just be a store credit card you recently applied for that is listed by the issuing bank’s name. Or maybe a home or auto loan was sold to a new loan servicer.
Other errors could be reason to suspect identity theft, or there could just be wrong information that’s bringing down your credit score.
If you suspect identity theft, such as someone taking out a credit card in your name, then file a police report and report it to your credit card company and the credit reporting agencies.
To dispute erroneous information, use certified mail to send the credit bureau a letter and copies of documents explaining the error. If a loan still shows an outstanding balance and you have written proof that it was paid off, for example, send a copy to the credit agency.
Credit agencies have 30 days to investigate and respond to your dispute, unless they deem it frivolous.
If it corrects an error, it must send you a free copy of your credit report through AnnualCreditReport.com so you can see that the corrections have been made.
Check Your Credit Score
The law allows you to request a credit score, though it’s legal for credit agencies and other businesses to charge you a fee for this service.
Some credit cards provide scores for free, so check with your credit card issuer first.
A credit score isn’t the same as a credit report.
Information in a credit report determines a credit score, and each credit bureau can use a different scoring model that requires it to provide different information.
You have different credit scores, depending on which factors are weighed more heavily.
Monitoring your credit is vital. Make sure that you review your credit report for any inaccuracies.
Know Who Can View Your Credit Report
The FCRA doesn’t allow a credit reporting agency to share your credit file with someone who doesn’t have a valid need.
Some inquiries, such as from a potential employer or landlord, require your written consent.
And, they can only check your credit report, not your credit score.
The credit reporting agencies can share your credit report for legitimate reasons, such as when you’re applying for credit, insurance, housing, or with a current creditor.
A Time Limit To Negative Information
The FCRA doesn’t allow credit bureaus to report negative information that’s more than seven years old, though it allows some forms of bankruptcy to remain on a credit report for 10 years.
There’s also a time limit for positive credit information such as on-time payments and low balances — up to 10 years after the last date of activity on the account.
Rejections Based on Credit Report
If your application for credit, job, insurance, or housing has been denied because of information in your credit report, the law gives you the right to know this information.
The landlord, employer or other entity that denied your application must notify you and give you the name, address and phone number of the credit reporting agency that provided the information.
The FCRA allows you to get a free copy of your credit report from that reporting agency within 60 days of the action against you. That’s in addition to the three free credit reports allowed annually.
To best deal with a potential rejection ahead of time, it’s smart to check your credit report before applying for credit, rental unit or related use of your credit report and check it for errors. Give yourself enough time to fix them.
NEW YORK, Feb. 16, 2021 /PRNewswire/ — S&P Dow Jones Indices and Experian released today data through January 2021 for the S&P/Experian Consumer Credit Default Indices. The indices represent a comprehensive measure of changes in consumer credit defaults and show that … Continue reading →
The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.
This week’s question: I need some advice in regards to my credit report and good ways that I can begin to build up my credit. I have no credit at all. Eventually within five years once I’m out of school I want to buy a house.
Building credit from scratch will take some time and effort, just like getting a job after graduating from school. You can think about good credit as a means to an end: you need good credit to finance big purchases and get the best interest rates and repayment terms on loans and mortgages. So, getting your credit ready is an excellent start to buying a home in the near future.
What is on Your Credit Report?
Your credit is a record of your monthly financial credit transactions. Your creditors report your activity to the three credit bureaus, Equifax, Experian, and TransUnion, and they use that data to generate a credit score. Your credit report also includes your personally identifying information such as your name, addresses, social security, and some public records such as bankruptcies and judgments and tax liens, if you have any. To start generating data for your credit report, you need to get a credit line. The easiest way to do that is to get a secured credit card. Many banking institutions issue secured credit cards, and they work pretty much like a regular credit card. The main difference is that these cards are backed by a cash deposit, which usually corresponds to the card’s credit limit.
Be Strategic
Learning how to use your credit card strategically is equally as important as getting that credit line. Your credit score takes into consideration several factors. The factor that influences your score the most is whether you pay your accounts on time and as agreed. Late or insufficient payments are very detrimental to your credit history. So, you should plan to pay in full and before your due date. Another important factor is your utilization ratio, which is how much you owe compared to your available credit. To have a balanced ratio, experts recommend that you use only 30% or less of your available credit in every billing cycle. For instance, if you have a $500 credit limit, you should be using less than $150.
Yet another factor is the age of your credit history. The older your credit history, the more history and data you’ll have to establish a solid credit history. Achieving this will just require time and your continued effort. The other two factors to keep in mind are the mix of credit you have (credit cards and loans) and how often you ask for new credit. Too many new credit inquiries reflect negatively on your score, so it’s important that you only apply for new credit sporadically. In your case, you should keep your secured credit card for at least a year before applying for a regular credit card. In some cases, your creditor may even upgrade your secured credit card to a regular one and return your cash deposit.
It’s never too soon to start building your credit. And once you learn healthy credit management habits, it will be very easy for you to manage your credit and use your credit cards responsibly on a daily basis. If you feel you need additional guidance or personalized help to get you started, you can always reach out to an NFCC Certified Financial Counselor. They are ready to help over the phone, online, and in-person if it’s available in your state. Good luck!
The vast majority of lenders use your FICO credit score to evaluate your credit risk as a consumer when they are deciding whether or not to extend credit to you. And yet, historically, it has been costly for consumers to access their own FICO scores.
Popular websites such as Credit Karma and Credit Sesame offer free credit scores, but the scores provided are usually VantageScores, not FICO credit scores.
Knowing your VantageScore is still valuable information, but it is not directly tied to your FICO Score, so it is less useful when it comes to preparing to apply for credit. While it is often true that a consumer’s FICO score is similar to their VantageScore, in some cases, they may be vastly different, especially depending on which credit scoring models are used and which credit bureaus are providing the credit report information.
If you need to check your FICO score, where can you do so without paying a fee to access it?
Here are some of the best places to get your FICO score for free.
Your Credit Card Issuer
Several major credit card issuers now offer consumers the ability to check their FICO scores for free.
Discover Bank
Discover offers a free way to check your FICO score with their Credit Scorecard program. Even consumers who do not have a relationship with Discover Bank can freely use this feature.
Experian provides the credit report data that is used to calculate your FICO score. Your credit score updates once every 30 days and Discover notifies you when it is time to check your new FICO score.
In addition, Discover’s FICO Credit Scorecard keeps track of your credit score history so you can see how it changes from month to month.
The Credit Scorecard also provides a summary of what is going on with each of the five credit score factors that are influencing your FICO score: your payment history, credit utilization, length of credit history, mix of credit, and new credit (e.g. inquiries). You can find educational information about credit scores on the website as well.
To access your FICO score with Discover’s FICO Credit Scorecard, either visit their website or use the bank’s mobile app.
Bank of America
Bank of America is another widely used bank that offers free FICO scores to consumers. However, to enroll in this program, you must be a Bank of America credit card customer.
Much like Discover’s offering that we described above, Bank of America’s FICO Score Program provides customers not only with their FICO scores but also information on the major factors that influence your credit score, your month-to-month credit score history, and education about how to achieve and maintain good credit.
On top of this, Bank of America also compares your credit score to the national average.
Bank of America customers can view their FICO score for free on the company’s website or mobile app.
Citibank
Consumers who have Citibank branded credit cards can obtain their FICO score for free from Citi.
Citi states on their website, “We think it’s important to provide our cardmembers with free access to information that will help them understand and stay on top of their credit status. That’s why we’re providing you with your FICO® Score and information to help you understand it.”
Your FICO score from Citibank is determined using information from your Equifax credit report and the FICO Bankcard Score 8 credit scoring model. Unlike the standard version of FICO 8 that you may be used to seeing, which ranges from 300 to 850, the bank card model used by Citi ranges from 250 to 900. It is updated once a month.
You can find more information on Citi’s free FICO score program on their website.
American Express
Recently, American Express started providing access to free FICO scores to consumers who have American Express credit cards.
The bank uses the standard version of FICO 8, so the credit score range spans from 300 to 850. Experian provides the credit report data used to calculate your score.
As with the other free FICO score programs, you also get to see how your FICO score changes over time and you receive a summary of the factors affecting your credit score.
American Express credit cardholders can see their FICO scores in their online account or on their monthly statement.
Those who do not have credit cards with American Express can get their TransUnion VantageScore for free through the company’s MyCredit Guide program, but this does not include FICO scores.
Barclays
FICO scores from TransUnion are available to all Barclays credit card customers through the bank’s online banking system.
Once you have had your Barclays card for three months, you can see a chart of your FICO score history over the time you have had an account open with Barclays, according to SmartAsset.
Plus, Barclays will send you alerts via email if your credit score changes, including an explanation of why your score has changed.
Wells Fargo
Wells Fargo account holders who use their online banking platform can view their FICO credit score within their online account.
Additional features include your credit score history, information on your credit score factors, and personalized credit tips from Wells Fargo.
According to the bank, they offer your FICO score for free in order to “support your awareness and understanding of FICO® Credit Scores and how they may influence the credit that’s available to you.”
The FICO score you get through Wells Fargo is calculated using Experian credit report data and is updated once a month.
Experian
Experian is the only major credit bureau that offers consumers their FICO 8 scores for free along with their Experian credit reports.
In addition, Experian offers an alternative credit data program called Experian Boost, which can add positive payment history from certain bills to your credit report, such as utilities and Netflix.
Sign up on Experian’s website to start using these free services.
Your Local Bank or Credit Union
Not all banks and credit unions offer customers the ability to check their FICO scores for free, but it is worth asking if you do not have access to the previous options. If your local bank or credit union does not offer free FICO scores, they may be able to help direct you toward somewhere that does.
Will Checking Your FICO Score Hurt Your Credit Score?
Although this is a common concern, checking your own credit score should never hurt your credit.
This credit myth likely arises from the fact that hard inquiries on your credit report can have a small negative effect on your score.
However, hard credit inquiries only happen when you are actively seeking credit and a lender has to pull your credit report to decide whether or not to loan you money.
All other credit checks, including those you conduct yourself for educational purposes, are considered to be soft inquiries, which do not affect your score at all.
Final Thoughts on How to Get Your FICO Score for Free
If you want to be able to see your FICO score for free, there are many options available to you, especially if you have credit card accounts with major banks such as those listed above.
FICO also has a program called FICO Score Open Access that aims to enhance consumer access to FICO scores and educate consumers about the topic. FICO has a list of additional lenders and credit and financial counseling organizations that participate in this program, which you can browse in case you do not have any accounts with the banks mentioned here.
Keep in mind that lenders use many different versions of FICO scores, including older generations and versions that are specific to certain industries. That means that when you check your FICO score for free, it is not guaranteed to be the same exact FICO score that a lender will use when you apply for credit.
When you check your FICO score using one or more of the methods in this article, take note of which credit bureau is supplying the information as well as which FICO score version is being used to calculate the result so that there is no confusion if you see a different FICO score somewhere else.
Finally, remember that you can also get your VantageScore for free in many places as well. While it’s not the same as your FICO score, it can still provide educational value as it uses the same general principles to calculate your score.
Let us know if this article helped you find a way to get your FICO score for free by commenting below!
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