Credit Questions and Answers

Below are some frequently asked credit questions and answers that will help you make smarter decisions about your credit. If you have additional credit questions, feel free to Ask Bill.

What are the different types of credit?

Generally, credit is organized into three major buckets: Revolving credit: where a consumer borrows money from a lender and pays it back at the end or makes partial monthly payments (e.g., Visa and MasterCard). Charge credit: where the lender provides the consumer with a loan under the presumption that it is going to be paid in full at the end of the month (American Express). Installment credit: occurs when the consumer agrees to finance a debt with monthly payments over a predetermined period of time (e.g. mortgage).

How do you begin to establish credit?

Consumers desirous of establishing a good credit record should start off by applying for a credit card. The companies that monitor credit history compile information based on your payments and responsible consumers build up a good credit report by promptly paying off what they owe. A second consideration, especially if the consumer did not qualify for a conventional credit card, is to apply for secured credit. This method lessens the lender's risk by having access to some kind of guaranty from the borrower in case of default. An alternative way is to have a person with a proven history of good credit co-sign a loan. These co-signers are a form of guarantee diminishing the lender's risk of non-payment.

What happens if your request for credit is denied?

There are a variety of reasons dictating why credit may not have been extended. Reasons ranging from insufficient income, short-time at a job or address, and/or poor credit history. You should evaluate your situation and know that you are entitled to receive a credit report delineating your denial. You should also know that the credit bureau is obligated to investigate and correct whatever legitimate errors you find therein.

What type of bad credit loans can I get?

A short term loan (a.k.a. payday/cash advance loans) is one common type of bad credit loan that is available to you. This type of loan requires no credit check or co-signer. However, you do need collateral to qualify for a short term loan and a checking account for the funds to be transferred to.

Why do unsecured credit cards for bad credit have higher interest rates?

When creditors provide unsecured credit to those individuals with bad credit, the credit issuers face higher financial risks. So, to protect themselves, creditors set higher interest rates and fees for those with bad credit.

Why should I pay a company to repair my bad credit if everything is going to reappear after a few months?

If you use a reliable credit repair service, everything WON’T reappear after a few months -- if you have been the victim of identity theft, all of the wrong information should be removed. Most reputable bad credit repair services correct your entire credit file and stick with it until all issues are resolved and cleared. Your bad credit might have a long and deep trail, so it could take time to completely clear your credit file of all issues.

When do I need debt counseling?

There is no established debt amount or situation that dictates the need for credit counseling. Whenever you feel overwhelmed by debt, regardless of the amount, and need assistant with your credit debt, credit counseling can help you steer clear of huge financial troubles.

How do I know if a Credit Counseling Service is Legit?

When selecting a credit counseling service, make sure the credit counselor you will be working with is certified. Many credit counselors are required to have and maintain a Consumer Credit Counselor certification. The certification process involves specialized and comprehensive credit counseling training as well as the passage of the certification exam. Also, check with the Better Business Bureau.

How will Credit Counseling Affect my Credit Rating?

The existing condition of your credit report will influence how credit counseling will affect your credit; however, there is no hard and fast rule regarding credit counseling and your credit. Most creditors will report your usage of a credit counselor while other may not; and there’s no predicting how future creditors will interpret it. Many lenders perceive credit counseling as a consumer "work-out" program. Credit counseling will NOT impact your FICO score.

Is Credit Repair Illegal?

Credit repair is LEGAL. You may have heard some mention that credit repair is actually illegal; but the fact of the matter is there is nothing illegal about credit repair and disputing inaccurate information about your credit file. The Fair Credit Reporting Act (FCRA) actually encourages people to dispute inaccurate information.

What can be taken off my credit report?

Any inaccurate, unverifiable accounts such as inquiries, old addresses, additional names on the report (you must have at least one name on your report), unpaid collections, charge-offs, repossessions, bankruptcies, medical bills, credit card debt, and divorce debts.

What can't be taken off my credit report?

There are certain things that just can’t be removed from you’re your credit report. If accurate, those things are federal and state tax liens, child support, new student loans, and any bankruptcies reported by the bankruptcy court.

What is a Good Score?

The higher your credit score, the better; however, there is no real industry standard. Credit scores range from 350-850. Each creditor/lender judges your credit score differently and takes other factors into consideration when determining your eligibility and/or risk. Typically, anything above 690 is considered a great score. Below a 620 is frequently referred to as "sub-prime."

How often do Credit Scores Change?

Your credit score is fluid; it changes as your credit information changes. Anytime new information is added to your credit report, your credit score can change. The credit reporting agencies (TransUnion, Equifax, Experian) usually update their credit data every 90 days.

I have a Number of Credit Cards. Will that Affect my Credit Score?

Your overall credit history will determine how your credit is affected by having numerous credit cards. However, having an overabundance of credit cards with high balances or credit availability can negatively impact risk scores if your credit history is questionable.

How do I begin to establish credit?

Consumers desirous of establishing a good credit record should start off by applying for a credit card. The companies that monitor credit history compile information based on your payments and responsible consumers build up a good credit report by promptly paying off what they owe. A second consideration, especially if the consumer did not qualify for a conventional credit card, is to apply for secured credit. This method lessens the lender's risk by having access to some kind of guaranty from the borrower in case of default. An alternative way is to have a person with a proven history of good credit co-sign a loan. These co-signers are a form of guarantee diminishing the lender's risk of non-payment.

Is There a Rule of Thumb Regarding the Number of Credit Cards to Have?

In general, it is better to have a few credit cards with high credit limits than a large number of cards with limited credit limits. Having credit cards with high credit limits demonstrates that you are responsible enough to carry a high credit limit on multiple cards.

Is it a Good Idea to Transfer my High Credit Card Balance to a New Card with a Rock-bottom Rate?

If you want to transfer your credit card debt to a different card, you need to make sure that there are no catches with the introductory rate of the new card. For example, sometimes the low introductory interest rate on a card is only for a very limited time and then it skyrockets to an exuberant amount. You also need to ask if there are annual fees, late charges, or any other stipulations that might make transferring your credit card debt to a new card counter-productive.

So what is Credit Monitoring?

Credit monitoring is the automated process of keeping an eye on your credit. Credit monitoring helps protect you against identity theft and monitors any changes and/or inquiries made to your credit file by alerting you within approximately 24 hours of any major changes made to your credit file.

Will Credit Monitoring Hurt My Credit Score?

No. Credit monitoring has no affect on your credit score. It’s simply a service that keeps your credit in check. The only time it affects your credit is when you ask a creditor to inquire about your credit.

Does Credit Monitoring Monitor my Credit with all Three Bureaus?

The specific credit monitoring service you use will determine which credit bureau is referenced in monitoring your credit. Each credit monitoring service uses only one of the three bureaus to monitor your credit; however, since the activity you’re looking out for affects your credit across the board, it won’t matter which bureau your credit monitoring service uses. They’ll still be able to identify unexpected changes or discrepancies in your credit report.

How do I get a Hold of My Credit Report?

Three major credit bureaus offer credit reports:

Equifax	Experian	TransUnion
800-685-1111	888-397-3742	800-916-8800
Equifax.com	Experian.com	TransUnion.com
File a credit dispute online at Equifax	File a credit dispute online at Experian	File a credit dispute online at TransUnion

To get a hold of your credit report, contact one of these three credit reporting agencies or AnnualCreditReport.com. Each bureau interprets your credit information differently, so you might want to get a report from all three.

Can I get a Copy of My Credit Report at Any Time?

By law, you're entitled to one free credit report annually from the credit bureaus. This can be accessed at: AnnualCreditReport.com. You can also request a no-cost copy of your credit report if you were denied credit; however, you can only request a copy from the specific credit bureau that supplied the credit report to the creditor who denied you.

What Information do Credit Bureaus Collect about Me?

Credit bureaus collect your identification information, employment history, credit inquiries, and any additional public records and data.

Will Requesting a Credit Report Affect My Credit?

No. Requesting a credit report will NOT affect your credit. You have the right to look at your credit report without it affecting your credit or score. When you request your credit report it's called a "consumer pull" and has no affect on your credit. The only time when requesting a credit report can affect your credit is when you ask a possible creditor to inquire about your credit. This is because it implies that you're possibly opening a new line of credit.

Should I Consolidate my Credit Card Debt?

If you have multiple credit cards, each with their own increasing debt, credit card debt consolidation might be just the thing you need. Consolidating your credit debt will allow you to make just one payment to a consolidator, instead of numerous smaller payments to multiple credit card companies. Frequently, you can also obtain a lower monthly payment.

Can I Get Arrested for Not Paying my Debt?

As long as fraud and theft are not involved, you cannot be arrested and jailed for failing to pay your debt. However, creditors can pursue civil monetarily to reclaim the amount owed to them.

Do Joint Credit Cards Help Build Good Credit?

Joint credit cards can work both ways. Since the credit card account is placed on both holders' credit accounts, the activity on the card as a whole affects both parties equally. So, if the card is maintained properly, it can help improve credit. However, if one of the card holders abuses the card and ranks up thousands of dollars in debt, it can adversely affect the other holder's credit rating.

Comments (56)

Tracy K.
Sergeant Bluff, IA  |  November 08, 2011

I am getting divorced and everything was in my husbands name, so I have NO credit. I have just bought a car and have made one payment and my credit score has went from zero to 600 in a month. I am due to make a another payment next week, will this raise my score to 620? I need to be out of my current residence in into my own place by Dec 1 and I have to have a credit score of 620 or higher or nobody will rent to me.

(0)

Bills.com
November 09, 2011

I am hesitant to say that your score will see a rise of another 20 points, due to one additional car payment.

You can make the payment and wait to see what happens or make the payment and look into a rapid rescore, to find out if the score rose to the level you require to rent. The linked article discusses rapid rescoring in relation to mortgage shopping, but it can also apply in your case, if you need to know your score and prove it to others in a short time frame.

If your score is not at the level you need (and even if it is), I recommend opening a secured credit card and working towards having at least three active tradelines in good standing showing on your report. Make sure the secured card reports to the three major credit bureaus.

(0)

Shawn S.
October 20, 2011

I have a collection department calling me about an account that was charged off over 10 years ago. They say that they are going through peoples credit reports and trying to help them get it cleaned up. I don't see this on my credit report but I'm worried that they will reactivate it since it is still an unpaid credit card from 10 years ago. How should I approach this collection company called protocol?

(0)

Bills.com
October 20, 2011

It is highly doubtful that a collection agency would comb through consumers' credit reports looking for ways to help them resolve old debt. Let us look at a few facts:

• Charge-off / write-off. An accounting term that means a creditor has moved an account from its current-accounts book to its general ledger as a bad debt. It does not mean the account is canceled, forgiven, or extinguished. See the Bills.com resource Charge Off for a more complete discussion of this oft-misunderstood phrase.
• Time. Seven years is how long most derogatory items can appear on a consumer's credit report file. The seven-year rule has nothing to do with charge off. It also has nothing to do with a state's statute of limitations. See the Bills.com resource Fair Credit Reporting Act to learn more about what can appear on a credit report and for how long.
• Statute of Limitations. You did not mention statute of limitations, but this term often arises when people discuss old debt. Just because a statute of limitations has passed does not mean a creditor may not collect a debt, except in Wisconsin. The passing of a statute of limitations gives a defendant in a lawsuit an affirmative defense, and nothing more. See Statute of Limitations to learn more.

A collection agent working on an ancient debt may contact a consumer to attempt to collect an ancient debt (except in Wisconsin). It can even file a lawsuit against the consumer. However, the consumer has an affirmative defense if there is such a lawsuit.

The 7-year clock does not reset when the consumer makes a payment or settles the debt. There is no reason, from a credit score perspective, to pay a 10-year-old debt. If the creditor files an action — a lawsuit — against you, you may have an affirmative defense if your state's statute of limitations has passed.

My advice? Send the collection agent a Cease Communication Notice.

(0)

Dave W.
Fairview, NC  |  October 13, 2011

My wife and I have had our car repo'd. We arent sure if we should attempt to get it back or let it go. How badly would her/our credit be damaged by this repo.

(0)

Bills.com
October 13, 2011

Impossible to say without knowing more about your history, present credit scores, and Fair Isaac & Co. releasing information about how it calculates a repossession. To get a rough idea of the effects some negative events have on consumers' credit scores, see The Higher a Consumer's Credit Score, the Farther it Will Fall With a Short Sale, Bankruptcy, or Foreclosure, and Analysis of the Effects of Bankruptcy, Foreclosure, Maxing-Out a Credit Card, and Debt Settlement On a Credit Score.

(0)

Michael G.
Mount Carmel, IL  |  October 04, 2011

I am an authorized card holder on an account in my mother's name. The card has a credit limit of nearly 20k. The balance is about 10k. I have made all of the payments, my mom has made none, but I send her the money and she puts it into her checking account and pays the card from that. She thinks the bank should know that I am making all of the payments, but I have a 3, almost 4, year old bankruptcy and I'm afraid they will rescind the card or drop the limit drastically, or even make the outstanding balance due immediately. I would like them to know if it would increase my credit score. I've never missed or been late on a payment and most always pay more than the minimum. My credit score is about a 645. Should I let the bank know that I am making all the payments or will it be a negative result?

(0)

Bills.com
October 04, 2011

Using banking industry jargon, as an authorized user you are piggybacking on your mother's credit card. Being an authorized user on a current account with on-time payment history and low credit utilization will boost your credit score.

The credit card issuer could not care less if you are contributing to the payments. You can send the credit card issuer payments from your own checking account and there will be no change in the account's status or in your credit score.

(0)

Austin P.
Lake Charles, LA  |  August 23, 2011

I have 39 k of credit out with three companies. I have never been late on my payments, always on time. Recently, I have tried to refinance my truck, which i have paid on for two yrs with one credit union I'm trying to switch to another for a better deal. When I bought the truck, my score was 685,which isn't great, but not terrible . So, I'm shopping around and no one wants to take up the refinance, not even my credit union I'm with now. So, I check my credit report and it's 630. I see there is a outstanding report, so I call and pay off this problem. My question is after this reports, will my credit score go back up? And, after paying on my loans for so many yrs with no prob why should it be so low? Any ideas would help I'm lost when it comes to credit.

(0)

Bills.com
August 24, 2011

It sounds like you are having a problem with credit utilization, which is an important part of your credit score. You are judged by the percentage of how much of your credit lines you use. It is generally advised to use 30% or less of your credit lines.

I can't tell you how much your score will rise, because there are so many factors involved in making up your score, but try to pay down all the balances to 30% or less and see what that does to your score.

(0)

Vanna B.
Portland, OR  |  August 15, 2011

I owe $24,000 in student loans with monthly payments of $250 and around 4% interest. I have been late on at least 5 payments in the past, and gone into forbearance 3 times... so I know my credit score has been damaged. However, I recently inherited enough money to comfortably pay the entire $24,000 debt all at once, but should I do this? Or should I instead set up a bank account for the total amount (including interest) and set my loans to auto deduct for the next 10 years to rebuild my credit score? Would this even rebuild my credit score, and is it worth the extra money in interest to do this?

(0)

Bills.com
August 15, 2011

What interest rates are you paying on the student loans? If the rate is low (<10% or so), and your goal is to rebuild your credit score, then I like your plan. However, instead of making minimum payments, double or triple the minimum payments to retire the loans relatively quickly, and provide a positive lift to your credit score. A lump-sum payment will not lift your score much, but a steady repayment history on this tradeline over three or four years will do wonders for your score.

(0)

Vanna B.
Portland, OR  |  August 15, 2011

Thank you for your answer =) My interest rate is around 4%. Will increasing my payments from $250 a month to $750 a month build credit faster? Or is that simply just to avoid accruing interest? If this is only an issue of interest, then would it not be more beneficial in regards to raising my credit rating to stretch my payments out over 8-10 years than 4-5?

(0)

Bills.com
August 15, 2011

Your interest rate is very attractive. My suggestion to accelerate the payments was to reduce the interest expense. However, at 4%, the difference in cost between paying off the loan in three years verses six or eight years would be minimal in comparison to what some people pay for credit repair.

(0)

Suzy S.
Athens, GA  |  August 11, 2011

I'm going to settle a repossession charge on my credit. It was repossessed in June and the debt was sent to a collection agency and has offered me a discount to settle with them, which I'm willing to do. They are saying that once the debt is satisfied that the "repossession" on my credit will come off. Is this true? I thought it would stay on for 7 years no matter if I paid it or not.

(0)

Bills.com
August 11, 2011

Include in your settlement negotiations a requirement that the creditor delete the derogatory entry on your credit report.

(0)

Suzy S.
Athens, GA  |  August 11, 2011

I tried to but they wouldn't budge. They said it will be reported as "Repossession/Never Late/Settled in Full"

(0)

Harvey G.
Snelling, CA  |  July 26, 2011

When will a notice of default or foreclosure show on credit report?

(0)

Bills.com
July 26, 2011

Either notice will appear 30 to 90 days after the mortgage servicer reports the information to the consumer credit reporting agencies. When the servicer makes such a report is unknown, and according to its own policies.

(0)

Yuri L.
Las Vegas, NV  |  August 10, 2011

Hello, I had a 5 year loan on a vehicle, which i paid off after 38 months. Approximately 17 months into my loan, I was 1-30 days late on one of my payments. The 37 other payments made were all made on time. My question is will my credit score still go up, even with that one late payment? It's been 60 days since the account has been paid off, it has shown up on my credit report as being paid off, but no credit boost? Thanks

(0)

Bills.com
August 10, 2011

The effect on your credit score is in part dependent on the other kinds of accounts you have and their status. If you have a variety of other accounts in good standing, such as a mortgage, student loans, and credit cards, then your score should continue to improve, the further away you are from your one late payment. If your score does not improve, my guess is that it is related to the number and mix of the accounts you have.

(0)

View All Comments

Submit a Comment

Since you don't have facebook, please provide us with your location and a valid email address so we can answer it. Without a valid email address,we can't reply. (Go back to login with Facebook)

You

First Name

Last Name

Contact Info

Email

Zip Code

Submit your Comment!

Update me when there are further replies/comments to this page

Type here...

 

Due to the high volume of comments received, we cannot publish and/or respond to every comment received. If you have a specific question, we recommend you search our site for an answer before commenting.

* Bills.com will not share, sell, lend, or make public your e-mail address. We reserve the right to delete any questions or comments that violate the Bills.com terms of service.

We get a lot of comments! To help us show our boss that this is a valuable service, so we can keep providing it, we ask you to do 2 things before commmenting:

Log in

Login with Facebook

(If you don't have facebook click here)

Like us

Submit your comment!

Update me when there are further replies/comments to this page

Type here...

 

Due to the high volume of comments received, we cannot publish and/or respond to every comment received. If you have a specific question, we recommend you search our site for an answer before commenting.

* Bills.com will not share, sell, lend, or make public your e-mail address. We reserve the right to delete any questions or comments that violate the Bills.com terms of service.

Thank you for your comment. Your comment will be posted shortly.