Frequently asked questions
Will An Authorized User Affect My Score?
Including someone as an authorized user on one of your accounts will not affect your credit scores, even if the other person has a poor credit history.
Separate credit histories are maintained for each individual. Accounts are reported with the names of each individual who is associated with that account. The account then becomes a part of each individual’s credit history and includes the type of association they have with the account, such as authorized user. When a person is added as an authorized user the account will appear in that person’s credit report.
If both your names are not on other shared accounts, nothing from their poor credit history will be added to yours and your good credit history will not be added to theirs. The only change will be the addition of the authorized user’s account to their credit history.
Credit scores are calculated using information from your credit history. So, making them an authorized user will not affect your credit scores because none of the other person’s credit history is combned with yours. Many scoring models do not score authorized user accounts; they may not help the other person.
The risk is that the authorized user will abuse the privilege and make charges that you cannot afford to repay. If you can’t make the payments on time, the late payments will appear in your credit report and will hurt your credit scores.
How Do You Know When It Is Safe To Apply For A New Card?
You are in control of your debt and have the ability to choose which credit is right for you. Be selective with regard to which offers you decide to accept. Only select the one or two cards that offer the terms and incentives that you really want or need.
There are many things to consider in a card offer. Low interest rates typically top the list, but that is only significant if you “revolve’’ or pay less than the full amount that you charge each month. I strongly recommend against that. If you do not revolve a balance each month, annual fees, high limits and special incentives such as airline miles, cash back offers or insurance might be even more significant in your decision.
Your credit report does not show whether an application has been approved or declined, so a declined application will not hurt your credit history or credit scores.
When you apply for credit, the lender will request a copy of your credit report. That request causes an inquiry to be added to your credit history. The inquiry doesn’t show whether the application was approved or declined. It is simply a record that someone has accessed your credit report because you have applied for credit.
If you are approved, a new account will appear in your credit history. If no new account appears, that doesn’t necessarily mean your application was declined. People often change their mind and choose not to accept the account for a number of reasons.
What Happens When I Receive A “change in terms” Notice?
From one of our credit card companies, increasing our interest from 7.90 percent to 17.90 percent, and from fixed to variable. Which decision will be best for our credit ratings, closing the account or paying it off and keeping it open at the higher rate, but not using it?
As with so many questions about credit reports and credit scores, the answer is that it depends on your overall credit history.
Generally, it is better to pay off the account balance and keep the account open. Credit scores are affected by your utilization rate, which is the ratio of your total account balances to your total available credit limits. The lower your utilization rate, the better.
Keeping the account open ensures that the card’s credit limit is included in the calculation. Paying off the balance further reduces the utilization rate. If you have no other credit cards that have a lower interest rate, you should use the card periodically and pay the balance in full each month just to keep the account active. If you have no credit activity, there is no basis for predicting your risk.
However, credit scores should not be the only factor in your decision. Too often I hear from people who are buried in debt, and the last thing they should be concerned about is their credit scores.
If you are deeply in debt, are struggling to make your payments on time, or already have late payments, closing the account could be the right thing for you to do, especially if you are tempted to use it. It would be better to close the account than risk digging yourself deeper into trouble.
In that case, credit scores are not important because you shouldn’t be taking on more debt, anyway. Instead, you should be taking steps to reduce the debt you already have and making sure you don’t add to it.
So avoid high interest payments at all costs. No matter what your debt position, that is such a smart thing to do.
What About Cancelling A Card?
Cancelling or closing a credit card can sometimes cause a temporary decrease in credit scores because it affects the overall balance-to-limit ratio. However, the history for that account will not be lost immediately.
When you close an account, you lose the available credit associated with it. That reduces the sum of your credit limits. Your total balances do not change, making it appear that your total balances have increased compared to your total available credit. That ratio is called the balance-to-limit ratio.
A high balance-to-limit ratio has proven to be a strong indicator of risk. When that ratio increases suddenly, it can negatively impact credit scores.
For that reason, it generally is best for most people to leave unused accounts open. Just be sure to keep the credit card in a safe location, or shred it.
If you choose to close an account you will not lose the history right away. Closed accounts with a zero balance and no negative history remain 10 years from the date they are reported closed.
Closed accounts with negative history, such as late payments, remain seven years from the original delinquency date of the negative information.
The result is that positive accounts will remain part of your credit report longer than negative accounts. Retaining that information is beneficial because a long, positive credit history is one of the best indicators that you will be a low risk customer.
Will My Credit Score Improve If I Have More Credit Cards?
Far more important than the number of credit cards you have is how you use them. The keys to improving your credit scores are simple, keep the balances on your existing credit cards low and always pay the bills on time.
Credit scores are derived from how you utilize your credit resources over a period of time. A long history of responsibly using a few credit cards can result in better credit scores than a short history with a large number of credit cards.
If you were to suddenly apply for several new credit cards, there would likely be a negative impact on your credit scores, not a positive change. Because there is no payment history associated with the new accounts, credit scoring systems don’t know how to interpret them. That often results in a temporary decline in scores, not an instant improvement.
In the long term, the important issue is utilization, also called the balance-to-limit ratio. Your balance-to-limit ratio is the total of your balances divided by the total of the limits on your credit cards. Having more cards can increase your total available limit, reducing your balance-to-limit ratio, which can positively affect credit scores.
However, keeping low balances on just a few credit cards can result in very good credit scores. So, improving credit scores alone is not a good reason to apply for a bunch of new credit cards. You should always have a good reason for getting a new credit card.
How Can An Item Be On Your Credit Twice?
Once under the original credit grantor and then under a collection agency? How does this affect the deletion date?
Your credit report is a credit history. That history documents the life of a debt. As a result, it will show both the original lender and any subsequent collection accounts. However, they are not seen as two separate debts. Instead, a collection account is recognized as a continuation of the original debt.
The account you had with your bank should be listed as charged off. It could also show that it has been sold or transferred to a collection agency. Charged off, transferred or sold are considered a final status, essentially the same as closed. As a result, that account entry is no longer an active debt. However, it will continue to appear on your credit report to accurately reflect the account history.
The collection account now represents the active debt. Usually, a collection account indicates that it was purchased or transferred from or transferred from the original lender.
The collection agency may then sell the account to another collection agency. The first collection account would then be reported as sold or transferred, and the new, active collection account would be added to the credit history.
Because a collection account is treated as a continuation of the original debt, it will be deleted at the same time as the original account. The original account and subsequent collection accounts will be deleted seven years from the original delinquency date. The original delinquency date is the date of the first missed payment after which the account was never again current.
The collection agency is required by law to carry over that original delinquency date from the first account and report it to the credit reporting company. That ensures the collection account is deleted at the correct time.