Credit Questions and Answers

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  • Frequently Asked Questions About Credit

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.

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Comments (75)


Debbie D.
Lapeer, MI  |  January 29, 2014
My husband and I were discharged from a Chapter 13 November 13, 2013. We have 2 credit cards that still are on our credit reports. They show as zero balance but show a high credit limit. Shouldn't these be showing discharged? All the other accounts show that way. Does showing it like we still have high credit limit bring our scores down? Please advise.
Bills.com
January 30, 2014
File a dispute with each of the consumer credit reporting agencies that publish inaccurate information about these two accounts.

A high credit limit does will not harm your FICO score until it gets too high. How high "too high" is Fair Isaac & Co. won't say.

If a credit balance is still showing on these discharged debts, that will harm your score, especially if the accounts are classified as unpaid.
Crystal L.
La Push, WA  |  December 13, 2013
5 years ago I opened a secured credit card in order to establish credit, now that my credit has improved I would like to switch to a regualar line of credit. We are very close to applying for a mortgage and want our credit scores to be as high as possible; as this is my longest conitnuous credit card with a good payment/balance history what it will do to my credit score if I close it and open an unsecured line of credit?
Bills.com
December 13, 2013
Closing a credit card does not lower your score in relation to your credit history. You don't lose the benefit of your card's positive history.

Where closing a card can harm you is by lowering your credit utilization, the percentage of your credit limit that you're using. Utilization is measured per card and as an aggregate of all your cards.

There is no benefit to your score from closing the card and there is potential harm. In your place, I would not close the card were I close to applying and my credit would currently meet a lender's credit score requirements.
William S.
Salem, OR  |  September 05, 2013
I have approx $40k in unpaid credit card debt that has not been paid on for at least 6 years. I have since moved and retired on a small income social security about $18,000 a year. I have felt terrible about this but i am unable to pay these bills but i really want to know where i stand legally concerning this debt. I am worried about accessing my credit report as i don't want some debt collector knocking on my door or putting a lien on the only car i have. What is my legal liability at this point?
Bills.com
September 05, 2013
I have four reading assignments for you that will help you understand your rights and potential liabilities:

I know I gave you a lot to read. Take the time to follow the four links I shared so you better understand your position.

If a credit card issuer or collections agent files a lawsuit against you, consult with a lawyer who can help you file an answer to the lawsuit.

Heather D.
Bay Point, CA  |  July 09, 2013
I have a significant medical debt (about $60k) in the state of CA. The debt was reported to my credit about 9 years ago. I made payments of $40 per month for 7 years just to keep the collectors from harassing me. Now, the debt has fallen off my credit report due to time. Also, the payment schedule has ran out, so the collector has started calling me again for payment. My question is this, can they re-report to my credit if I don't continue to make payments? I feel like there is no point in continuing the payments for a debt i'll never be able to satisfy. I also feel like i've paid my debt to society by already having my report dinged once. Its been 9 years, how long can they continue to go after me for this debt? My credit report is finally "clean" and my score is great, so of course I don't want to do anything to hurt future scoring. Any advice for this situation? Thanks for your help! Heather
Bills.com
July 09, 2013
Two separate issues here:
  • Most debts are allowed to appear on your credit report for 7 years. The clock starts at the date of first delinquency. Let us say for the sake of argument the $60,000 medical bill arrived on January 1, 2004, and was due February 1, 2004. You did not make the minimum payment on the bill on February 1. That's your date of first delinquency. Any subsequent payment agreement or payments you made are irrelevant as far as the date of of first delinquency is concerned. Using our hypothetical facts, this debt must be removed from your credit reports February 1, 2011.
  • This collection account may not appear on your credit report, but that is separate from the original creditor or collection agent's right to collect the debt. In all but two states, just because the debt passes that state's statute of limitations does not mean the debt cannot be collected. And, just because the debt no longer appears on your credit report does not mean the debt cannot be collected.

You asked what to do. Send the collection agent a cease communications notice. If the collection agent sells the debt to another collection agent, you will need to send the second collection agent a new cease communications notice.

Linda B.
West Warren, UT  |  June 10, 2013
I noticed on my credit report for my charged off credit card. It was sold to a debit buyer and they listed themselves on my credit report they have the date of last activity as the current date, I guess they sold it to another debt buyer now they listed a credit line too on my credit report date of last activity is the current date. This charge off is over 6 years old. How do I not end up with line after line of debt buyers trying to collect on the same debit and get the date of last activity corrected? How do I get all the lines of debt buyers off my report that no longer own it showing it as an open collection?
Bills.com
June 10, 2013
You have credit reports at Equifax, Experian, and TransUnion. Because each company is independent, the information in each of your reports may be different.

What is the date of first delinquency on the original credit card account? Find that date, and add 7 years. That is when the original account and all related mentions of that account will disappear from your credit report. If what I described does not happen, file a dispute with the consumer credit reporting agencies (Equifax, Experian, and TransUnion) that continue to publish this information after the 7-year deadline.

You may wonder if collection agents buying, selling, or trading your collection account resets the 7-year clock. Those activities do not. Unscrupulous collection agents will attempt to reset the date of first delinquency in the original account, but that is a violation of the Fair Credit Reporting Act.
Michael S.
Waltham, MA  |  October 30, 2012
I applied for a credit card and was approved, but when I received it in the mail it was for a different card. I called and was told that because I wasn't approved for my original card, they found one that they thought best suited my needs and that doing this is standard. I did not ask for this other card, nor want it. I called and closed my account seconds after activating (apparently you can't do one with out the other). Will this effect my score, history or report at all? They also continued to tell me that I should just apply for another card (they did forget to mention that there is a 45 waiting period to do that). I'm just concerned that I had "jumped the gun" with closing my card right away. I don't want it to effect my history. Will it?
Bills.com
November 01, 2012
Will opening and closing a credit card in rapid succession without using it impact a person's credit history? Yes, the opening and closing of the card will appear on the person's credit history, which a credit report contains.

Will opening and closing a credit card in rapid succession without using it impact a person's credit score? No. However, applying for credit has a slight negative impact on a person's FICO score.
Mike J.
Daly City, CA  |  September 17, 2012
I have a 50/50 ratio with debt vs. credit at the moment, with a credit score of 750 and 5 credit cards. If I were to close the highest card with $8500 limit but $6000 balance, would that affect my score what-so-ever considering the debt ratio is higher now due to low credit availability closing the account?
Bills.com
September 19, 2012
Closing a credit card account does not alter your debt-to-income (DTI) ratio. Your closing the $6,000/$8,500 account will not alter your DTI at all.

The only ways you can alter your DTI are to:
  • Pay the balances down
  • Increase your income
  • Discharge your debt in bankruptcy
Ali G.
San Diego, CA  |  April 02, 2012
I had a credit card and also 2 different car loans that went unpaid. All 3 were paid off and closed to Financial 21 Credit Union. Each loan is on my credit report twice. Each under both Financial 21 AND California Coast Credit Union. One loan shows under Financial 21 as Current. but the same loan under California coast credit union shows current closed. The second loan shows financial 21 current closed but the same loan under California Credit union shows potentially Negative. The third loan shows under financial 21 as being current closed, but the same loan under California credit union shows potentially negative closed.I recently found out that Financial 21 no longer exists and that California Credit Union took over. How are they reporting to my credit report when I paid the loan off prior to the merge? Is this affecting my credit score having it listed on my credit report multiple times with different categories? Should I have something removed?
Bills.com
April 05, 2012
Consider writing three separate Credit Report Dispute letters to the credit reporting agencies about the three Financial 21 accounts. Write one letter per month about one of the accounts, and send this letter to each of the three credit reporting agencies. Why one letter about one account per month? If you send too many disputes at once, the credit reporting agencies can consider your disputes frivolous, and reject them all. By spacing them out, you remove this potential objection.

Why dispute the Financial 21 accounts? The institution no longer exists. It is unlikely the successor to Financial 21 will care about your disputes, and will probably ignore them. If this occurs, then the credit reporting agencies must remove the accounts from your credit report.

If you can remove the Financial 21 accounts from your credit report, get another credit score. Is the new score higher than the old score? If so, then the old Financial 21 accounts were dragging you down. If not, then focus your attention on disputing the erroneous California Credit notations.
Avatar
Allison G.
San Diego, CA  |  April 05, 2012
Thank you, however my concern with Financial 21 vs California coast is that Financial 21 is all positive while California coast is negative. I don't even know how that is even possible.
Bruno V.
February 26, 2012
Hello, I finished Consumer Proposal couple months ago. When I checked my credit file, it says: "Making regular payments under consolidation order". Why, when I already repaid it? Thank you, Bruno
Bills.com
February 26, 2012
I am most familiar with the term "Consumer Proposal" as an alternative to bankruptcy in Canada. I can't give you much information, as Canadian credit reporting rules are not an area in which I have great knowledge. I did some quick research and it appears that once you complete your Consumer Proposal payments that there will be a notation on your credit report for a three year period.

Whether the notation that shows on your report is proper, I can't say. I suggest you contact the provincial or federal authorities that regulate Consumer Proposals to get a clear answer.
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.
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.
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