Frequently Asked Credit Questions

Most Asked Questions Regarding Credit Along

The world of credit scores, credit history, credit reports, credit cards and loans can be overwhelming. Following are some of the most frequently asked questions concerning credit along with sound, practical answers to better help you better understand this important subject.

How long does it take for a credit rating to improve?

Any negative items on your credit report will remain there for seven years. A bankruptcy is listed for ten years. If you actively work to improve your payment history and reduce the amount of overall debt you are carrying, you should see a slow, steady increase in your credit score over 1-2 years.

The important thing to remember is that improving your credit rating takes patience and determination. There is no easy, quick fix.

Will applying for new credit affect my credit score?

Each time you apply for new credit, whether it’s a car loan, credit card, or mortgage, potential lenders pull your credit report to evaluate your payment history and determine your creditworthiness. Each one of those inquiries is added to your report. A large number of inquiries may indicate to creditors that you are seeking many new lines of credit which, in turn, can signal that you are experiencing financial difficulties.

Be cautious when taking on new credit. It’s better to have fewer credit cards with larger credit limits than dozens of cards with smaller limits. For example, having 2 credit cards with a combined credit limit of $6000 is preferable to having 6 credit cards, each with a $1000 limit.

Is it possible to clean up my credit report?

Yes, it is possible. If you have a large amount of outstanding debt, work diligently to lower it. This may mean sitting down and going over each and every expenditure you make and seeing what can be reduced or eliminated. The money saved can then be put towards making larger payments on your outstanding balances. Making minimum monthly payments will keep you in a continuous cycle of debt.

Don’t apply for new credit. You need to manage and reduce the debt you already have.

Try to have different types of debt. Someone carrying 15 credit cards will normally have a lower score than someone with a car loan and perhaps 2-3 major credit cards. Creditors want to see a positive payment history with varying types of loans. Car loans and mortgages usually have set amounts which are paid each month. Credit cards require different amounts and indicate how well you can manage your available credit lines.

Get a copy of your credit report and check it for any misinformation or other errors. Mistakes do happen and it is important to periodically go over your report. Dispute any errors with the specific credit bureau.

Again, cleaning up your credit report takes time and effort on your part. But the rewards are clearly worth it.

Should I close some of my credit card accounts?

Many people think that closing a credit card account will automatically improve their credit score. The opposite can actually be true.

When creditors look at your credit report, the length of your credit history is important. Many years of consistent, timely payments are what they want to see. If at all possible, you should try to keep these older accounts open. If you want to close an account, choose one of the newer ones.

Your best plan is to keep these accounts open, even if there is no outstanding balance. Use them each month for a small purchase which can be paid off in full. This shows activity on the accounts. Plus, by paying the entire balance each month, you aren’t charged interest. This can raise your credit score, over time.

Finally, remember that even if you close an account, it remains on your credit report.

How does a civil judgment affect my credit score?

A civil judgment is when a creditor sues you to recoup the money which you owe them. Yes, it can impact your credit score in a negative way. However, if your credit history is solid except for this one blemish, your score should recover and improve within a few years. In financial terms, nothing is forever. Eventually most derogatory items can be cleaned up and you can move on.

If you are being sued by a creditor, you should consider contacting a licensed attorney who specializes in these matters. Only someone legally qualified can explain your rights under the law and the different options you may have.

I ordered copies of my credit report from the three main reporting agencies. Why are my scores different from each credit bureau?

The main credit bureaus are TransUnion, Experian, and Equifax. Most creditors report to all three of these agencies with your credit activity, payment history, etc. A normal FICO score ranges from 300-850. However, Experian uses a formula they developed which calculates scores from 330-830.

Since the exact FICO formula is not public knowledge, it is impossible for someone to actually calculate their own score. Each agency uses its own scale and method to arrive at a credit score. This can cause slight variations in the final number.

Normally, you will not see a difference of more than 50 points among credit reports from the three companies. If you do, check them carefully for inaccuracies or false information. You can dispute any errors that you find.

The information you see on your credit report is normally 2-3 months old. If you have paid off a loan or had some other unusual circumstance occur, remember to wait to order your credit report until these items have had time to be reported and to appear on your report.

My spouse has a less-than-perfect credit history. Will this affect my score?

This, in itself, should not affect your score in a negative way. Even when married, each person has their own credit report and history. A credit report clearly indicates who is responsible for the debt.

The only situation where this could impact you is if you apply jointly for new credit. In this case, the creditors would request both of your credit reports and would take into account the spouse’s report with the low credit score.

Your score could be affected if you are added as an authorized user to one of your partner’s delinquent accounts. When you become a user on the account, the entire credit history of the account will appear on your credit report.

Are some credit card bills more important than others as far as paying them off?

There are differences of opinion over this question, even from the experts! What’s true is that 35% of your credit score is based on credit history. The best way to increase your credit score is by consistently making your payments on time. Late or missed payments will damage your credit score.

If you have delinquent accounts and are considering paying them off, first look to see how old the delinquencies are. If some of them are over 5 years old, they are not having a big impact on your score. Pay off the more recent delinquencies if you want to see improvement.

Remember, older blemishes on your credit report have little effect on your credit score. The amount of each account or how many accounts you have is not as important as the timing of the delinquencies. Recent events, such as late or missed payments, cause the greatest harm to your score.

I have a delinquent account. Should I pay it off in full or try to negotiate a lower settlement amount?

As soon as this account became delinquent, your credit report was damaged. When calculating your credit score, none of the credit bureaus will differentiate between your paying off the entire amount or settling for a lesser payoff amount. Since your credit score has already taken a hit, it makes sense to try and negotiate and pay a lower settlement amount.

I’m going through a divorce. How will this affect my credit?

For any credit that you obtained jointly throughout your marriage, you both will remain fully liable for these debts. A divorce decree does not change that.

It’s important that you keep your joint bills current during the divorce process. Even if you will have no liability for them afterwards, it is a smart move to do this. Creditors will be more likely to work with you later if they see you as acting in a reasonable and responsible manner during the divorce proceedings.

You will need to establish or re-establish credit in your own name once the divorce is finalized.