Q:       I’m currently unemployed and unmarried. Do these facts impact my credit scores?

A:        No. Neither of these facts affects your scores. Also, your scores are not affected by the number of dependents you have, retirement, debt-to-income ratio, number of years on the job, income, a spouse’s credit, checking and overdraft account activity, savings account balances, net worth, service accounts (e.g., utility bills), rent payment history, or participation in a credit counseling or debt management program. Also, you must be more than 30 days beyond the account due date before your credit scores are impacted.

Q:       Will opening a new credit account affect my scores? 
A:        Yes. The computer model used for scoring initially penalizes you for seeking new credit. After several months, however, your having opened a new account should no longer be factored into your scores.

Q:       Can closing credit accounts affect my credit scores? 
A:        Yes. Your credit scores are affected by the ratio between the reported dollar limits on your accounts and the reported balances. Closed accounts are not factored into this ratio, so closing accounts may negatively affect the overall ratio and, therefore, your credit scores.

Q:       I’ve had one credit card for a long time, but never use it. Should I close that account?

A:        Using a credit card for a long time reflects a long credit history, which may improve your credit scores if you pay your bills on time. It may be wise to keep your account open and use it periodically. If you have not used a credit card for six months or more, you take a risk that the creditor may close your account and it will no longer be factored into your scores.

Q:       Would combining all my credit card balances onto one credit card improve my credit scores?

A:        Not necessarily. It is better to have small balances spread over several credit cards to improve your credit utilization ratio (which usually improves your credit scores).

Q:       I regularly run up high credit card balances, but pay my bills in full each month. How does this affect my credit scores?

A:        Even though you pay your accounts in full every month, running up high balances can damage your scores because the chances are slim that your balance will be “zero” on the particular day a creditor asks for your credit scores. You can avoid this by making payments multiple times during the month.

Q:       What will happen to my credit scores if I close a credit account that still has a balance?

A:        Closing accounts with a balance can cause a creditor to reduce the credit limit to the current balance. This creates a 100 percent utilization ratio, which hurts your credit scores. It is wise to pay the account in full before you close an account.

Q:       How can I boost my credit scores?

A:        Aside from establishing a long credit history and paying your bills on time, here are some additional tips:

·       Check your credit report periodically. Be on the lookout for creditors that lower your credit limits, which can lower your scores. If that happens, you will need to keep lower balances.

·       Apply for credit when you don’t need it. It may be easier to qualify, you may get better rates and you’ll have credit available if you need it. Although you may take a small hit on your score in the short term, in the longer term it can benefit your scores, assuming you manage your account responsibly.

·       Be careful about store promotions that offer discounts on the day you make purchases if you open a credit card. These offers typically give you a low credit limit. This means your credit utilization percentage can start out high, which can lowers your scores. Similarly, lowering your credit card limits to reduce your exposure may raise your utilization percentage, which may lower your scores. Try to raise your credit limits when possible, but keep your balances low (a utilization rate of 25 percent or lower is good.)

·       The type of credit accounts you have impacts your credit scores. The harder it is to qualify for credit, the more positive the impact on your scores.  For example, it is generally harder to qualify for a Visa© or MC© credit card than for a gasoline or retail store credit card.

·       “Good” credit can stay on your report forever. Most “bad” credit falls off after seven years, but YOU must monitor your reports to see that it has been removed.

·       If you need to rebuild your credit, obtain secured credit cards or small personal bank loans.

·       If you have an excellent score, protect it. Late payments hurt those with excellent scores more than those with “good” or “poor” scores.

Remember…an important consumer responsibility is knowing, managing and monitoring your credit reports and scores. 

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Richard Korn, a credit counselor at the Westerville Area Resource Ministry (WARM). Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

Q:       What’s the difference between a credit report and a credit score?
A:        A credit report contains information that creditors provide to a credit bureau; it details how you have handled your past and current financial obligations. A credit bureau collects data from creditors 24/7, but does not check the accuracy of the information provided by those creditors. There is a cost for creditors to subscribe to a credit bureau service. It is a voluntary system, and creditors are not required to provide this data to a credit bureau. Some creditors report information monthly, some periodically, and some do not report at all. There are three main credit bureaus that provide credit reports: Experian, Transunion and Equifax.

            A credit score is different from a credit report. Although the three major credit bureaus do provide credit scores based on the credit information they have for you, the credit score is not part of the credit report.  90 of the top 100 largest financial institutions use your FICO score to determine your credit risk and to decide whether or not to give you a loan or to extend credit. This credit score is actually a calculation developed by the Fair Isaac Company (named for its founders, Mr. Isaac and Mr. Fair), so it is called the “FICO” score. The FICO score predicts future credit risk. It does not reflect your credit history.  The FICO score range is 300 to 850.  If your FICO score is very high, you are considered a good credit risk, and a lender is more likely to loan you money or extend credit at more favorable rates and terms.

           

Q:       Many services and credit bureaus offer free credit scores. Are these always FICO scores?
A:        No. Although all scores are generated from data collected by the three major credit bureaus, many scores are generated using different scoring models and not FICO’s. Also, the other scoring models may have different ranges. For example, some score ranges start at 330, while other ranges may end at 840.  

Q:       Why are my FICO scores different?

A:        Though all three credit bureaus base their scores on the data they have on file, “FICO” scores may vary because: 1) creditors don’t always report to all three bureaus, 2) data collection methods and reporting can differ and 3) credit bureaus may install the latest versions of FICO software at different times.

Q:       What is an “excellent” FICO score?
A:        Before the 2007-2008 U.S. financial crisis, a FICO score in the range of 700 to 720 was considered to be excellent. Because of the large number of defaults during the crisis, creditors and lenders have become more cautious and currently (August 2013) look for scores in the 740 to 760 range.

Q:       How can I get my FICO score with my credit report, and do I need to get my scores from all three credit bureaus?
A:        You can get all your FICO scores by visiting MyFICO.com. You should request FICO scores from all three credit bureaus. Financial institutions may choose one of the three scores to make their credit decision. Some may choose two and others may choose all three scores.

Q:       Is there any other way I get my credit report and FICO score?

A:        When you apply for a loan or mortgage, the financial institution will pay to get your credit report and FICO score. They may share the information with you, if you ask.

Q:       Where can I get more information?

A:        Because information about credit reports and credit scores are constantly changing, a good source for updated information is myFICO.com.

This “Law You Can Use” column was provided by the Ohio State Bar Association. It was prepared by Richard Korn, a credit counselor at the Westerville Area Resource Ministry (WARM). Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.