Saturday, September 6, 2014

How Closing a Credit Card Affects Your Credit Report and Score

By credit expert: John Ulzheimer:
http://www.johnulzheimer.com


If you follow credit scoring to any extent, you're probably familiar with the concept that closing credit card accounts can potentially lower your credit scores.

The idea that closing a credit card will always have a negative impact upon a person’s credit scores is untrue. There are some scenarios under which closing a credit card is completely benign. Let’s explore the issue in depth.

The Never Ending Myth:

The idea that closing a credit card automatically lowers a consumer’s credit scores due to the fact that the age of the account will no longer be counted is false. FICO® and VantageScore® credit scores still consider the age of closed credit card accounts when determining a consumer’s credit scores. In fact, closed credit card accounts even continue to age as time passes. Keep in mind, however, that closed accounts will eventually be removed from your credit reports 10 years after the closing date and at that time you will lose the value of the age of the card.

Why Closing a card can actually hurt scores:

Credit scoring models are very concerned with a consumer’s revolving utilization (or debt-to-limit) ratio. Revolving utilization is a fancy way to describe the relationship between the balances on all of a consumer’s credit card accounts with the credit limits on his open credit card accounts. Closing a credit card can cause your utilization ratio to go up and, therefore, your scores to go down.

If Joe Smith has 3 credit cards, each with a limit of $2,000 ($6,000 total available credit) and a balance of $1,000 per card ($3,000 total debt) then his aggregate utilization ratio is 50% ($3,000/$6,000 = .50). If he were to close one of the cards his total available credit would be reduced to $4,000 while his total debt remains at $3,000.

Closing that one card just shot Joe Smith’s utilization ratio up from 50% to 75% ($3,000/$4,000 = .75) within the space of a single phone call. This is the one reason your scores would go down because of you closing a credit card account.


Closing Cards Strategically:

Smart consumers know that carrying credit card debt from month to month is a bad idea. Revolving a balance on credit cards is not only bad for a consumer’s credit scores, it is a poor financial decision as well because of expensive interest. The best way to use credit cards is to spend only as much as you can afford to pay off, in full, by the due date. But, if you are resolved in your decision that credit cards are no longer for you, there are a few smart ways you can do this.

Scenario #1

If a consumer has no credit card debt, ever, then he can close a credit card without any impact to his credit scores. Closing a credit card with a high annual fee, for example, might actually be a wise decision. Remember, if the consumer has a $0 balance on his credit card across all of his accounts then his utilization ratio is 0%.

Scenario #2

If a consumer has several credit cards with high limits and wants to close a credit card with a much lower limit, then doing so will probably have little-to-no impact on the consumer’s credit scores, depending on how much debt he’s carrying on other cards. However, unless the card with the low limit has a high annual fee or perhaps a high interest rate, it’s probably a better idea to keep the account open.

Scenario #3

Consider not closing any of your credit cards, ever. Unless your card has an annual fee, it costs you nothing to keep it open. If it has a high interest rate, just don’t use it or use it for minimal purchases, like a tank of gas, so that it can be paid in full easily by the due date. This way you won’t ever have to worry about the potential damage of closing credit cards.  Furthermore, having several different cards can actually come in handy; learn more about the value of carrying multiple credit cards.


Learn more from credit expert John Ulzheimer at: http://www.johnulzheimer.com


NEXT POST: What to do when you get a 1099c for an old debt: 



Tuesday, July 29, 2014

What To Do When You Get a 1099-C For An Old Debt

By Gerri Detweiller.

Earlier this year, questions poured in from readers grappling with how to deal with 1099-Cs they received from lenders reporting “canceled” or “forgiven” debt. I wrote a number of stories addressing the issues they raised, and vowed not to touch the topic again until next tax season.

But the questions kept coming in.
One kept nagging at me: What should you do if you get a 1099-C for a very old debt? Though I had written one story already on that subject, the fact that I couldn't provide readers with a clearer solution bothered me.
Take Dave, for example. He told us that in 1997 he was in an auto accident. He was out of work for eight months and could not pay his auto loan. The vehicle was repossessed and the $15,000 balance was charged off. The loan was with Chevy Chase Bank. In 2006 – almost 9 years later – he heard from a debt collector but he ignored it. The debt was off his credit reports by that time. Capital One had acquired Chevy Chase bank in 2008, but didn’t try to collect from him. In 2011, he received a 1099-C from Capital One reporting $9,000 in canceled debt for tax year 2010 – about 13 years after he stopped paying on the loan. Now he may have to pay an additional $2,000 in taxes for 2010 as a result.
Read the rest of this fantastic article from it's source, Credit.com: http://blog.credit.com/2012/06/what-to-do-if-you-get-a-1099-c-for-an-old-debt-2-58670/

Next Post:  35 "Other" Credit Bureaus




Friday, March 21, 2014

35 + "Other" Credit Bureaus


Equifax, Experian and Transunion are commonly referred to as the "Big 3" consumer credit bureaus. Did you ever wonder who all of the "little ones" are? 

Below is a list of over 35 "other" credit bureaus. Before you check out the list, here are a couple of highlights: 

ChexSystems - This is a credit bureau used for NSF and check fraud screening. They are a "consumer credit bureau", and consumers can request their ChexSystems report just like they can from the big 3 credit bureaus. Unlike the "Big 3" credit bureaus, however, no creditor or merchant reports positive data to ChexSystems. If you're in their database, it's only bad news! 

LexisNexis - LexisNexis collects public records from the PACER system and from courthouses around the country and shares those records with the "Big 3" credit bureaus. 100% of the credit bureaus' public record data comes from LexisNexis. 

Medical Information Bureau - Have you checked your MIB report lately? The Medical Information Bureau keeps tabs on your medical history. Your medical history is pretty important, so it could pay to keep tabs on your MIB report. 


Here's the full list for your viewing pleasure. Note, not all of the below credit bureaus are necessarily "credit bureaus" in the strictest sense of the word. A few are supplementary to the other credit bureaus, and are used for data appending and verification or other consumer data industry needs. 

Banking and Check History CRAs
- ChexSystems 
- Certegy Check Services 
- Telecheck 

Payday Lending Reporting Agencies: 
- Factor Trust 
- Clarity Services 
- CL Verify Microbilt 
- CoreLogicTeletrack 
- DataX 

Auto and Property Insurance Reporting Agencies: 
- Insurance Services Office (ISO) (A Plus Property Reports) 
- Insurance Information Exchange 
- L.N. (Clue Personal Property Report) 
- L.N. (Clue Auto Report) 

Supplementary/Alternative Credit Reporting Agencies: 
- CoreScore Credit Report 
- L2C 
- Pay Rent Build Credit (PRBC)/Microbilt 
- ID Analytics 
- Innovis 
- Lexis Nexis Screening Solutions. Inc. 

Utility Credit Reporting Agencies: 
- National Consumer Telecom and Utilities Exchange 

Rental Reporting Agencies: 
- Core Logic SafeRent 
- LexisNexis Screening Solutions Inc. Resident History Report 
- Leasing Desk (Real Page) 
- Tenant Data Services 
Medical Reporting Agencies: 
- Medical Information Bureau 
- MillimanIntelliScript 

Employment Reporting Agencies: 
- Accurate Background 
- Contemporary Information Corp. 
- Early Warning Services 
- EmployeeScreenIQ 
- First Advantage 
- GIS 
- HireRight 
- Infocubic 
- Intellicorp 
- Pre-employ.com 
- Trak 1 Technology 
- Verifications Inc. 
- The Work Number 


Next Article: The Credit Bureaus "Rise to Power"

Friday, October 11, 2013

The Credit Bureaus "Rise to Power"


By Robert W Linkonis Sr.

The vast majority of Americans have to obtain a loan to purchase a new car or home. During this process, the lender will order a copy of one or all of your three credit reports to make either a lending or an adverse action decision to the request. The interest rate or fees that you will have to pay on these loans may be directly related to how you have handled your credit.   

Every one who has heard me speak over the years knows that I am big on handling credit "wisely". This means in part - maximizing your credit score by understanding the credit score. But - the credit score is computed based on data obtained by the three credit bureaus. How did the three credit bureaus rise to the level of power that they have to influence the lives of every one of us?


History of the Credit Bureaus

As far as back as the 1860s we can find traces of the origins of credit bureaus. Local merchants would share and maintain lists of individuals who were high credit risks. That allowed them to offer more credit to people who weren’t on the lists, whereas previously, most merchants only extended credit to people they knew personally.

Later on as populations became more mobile and a wider group of merchants across the country needed information to help determine the creditworthiness of individuals, credit bureaus as we know them today began to materialize. 

What Are the Three Credit Bureaus?

Over the years, as the number of people seeking credit grew, the ability to find consolidated credit reporting information took on added importance. Today, some 2 billion data points are entered every month into credit records in the U.S, and approximately 1 billion credit cards are actively being used in the U.S. That’s a lot of data!

There are literally thousands of small credit bureaus doing business today. Most are just resellers of data from the "Big Three": Equifax, Experian and Transunion Let’s take a brief look at their history.

 
History of Equifax

Equifax was founded way back in 1899 as the Retail Credit Company. They grew at a furious pace and had offices throughout North America by the 1920s. By the 1960s, they had credit information for millions of Americans on file, and weren’t afraid to share it with whoever wanted to pay them for it.

The passage of the Fair Credit Reporting Act of 1970 placed some limits on what information could be shared with who, as well as put laws in place to govern the credit industry and protect consumers. Retail Credit Company suffered a bit of an image problem, but by 1975 they had successfully re-branded as Equifax.


TransUnion

TransUnion was the second of the Big Three to come along. Founded in 1968 as the holding company of Union Tank Car, a rail transportation equipment company, TransUnion jumped into the credit sphere in 1969 when they began acquiring regional and major city credit bureaus. They’ve grown over the years to the point where they now have over 250 offices across the U.S., as well as in 24 other countries.


Experian

Experian is the latecomer to the Big Three. They were founded in 1980 in England as CCN Systems. They expanded to the United States in 1996 by acquiring a company called TRW Information Services. They’ve continued to grow their operations to 4 main geographic regions, employing 15,000 people working in 41 countries.



Credit from here and beyond...

With the dawn of the internet age, credit bureaus now offer the ability for consumers to view their credit reports online, as well as give them access to dispute incorrect items that may have shown up on their credit reports.

There are many ways, right and wrong, to dispute errors on your credit report. Always seek professional advice before blindly disputing errors on your credit reports. Did you know that disputing the incorrect way could sabotage your credit repair efforts??

Call a specialist today for a free credit consultation. 

There is never a charge for a consult and good advice. Call today: 800-648-5157.   Or visit us on the web: http://www.CreditRA.com




Tuesday, July 23, 2013

How Student Loan Debt Factors into Your FICO® Score

By Tom Quinn

This year’s summer break may be a bit more stressful if you are a college student who plans on taking out subsidized federal student loans to help pay for upcoming tuition.  Unless Congress takes action this summer to restore lower rates, new student loans will have interest rates twice what they were in the spring semester (3.4 percent to 6.8 percent).  You don’t need to be a math major to know this is not good news.

This difference in interest rates will increase the total amount of money you end up investing in your education.  And it will likely impact a lot of US consumers.

With education costs rapidly outpacing inflation, more students and their parents are taking out student loans to pay for education. Based on recent FICO research looking at a large data sample from one of the credit bureaus, we found that 6.2% of US consumers had two or more open student loans on their credit report in 2005. By 2012, that number grew to roughly 11.8%.

Consumers also have a greater amount of student loan debt today. In 2005, consumers with an open student loan on file had an average student loan debt of $17,233. In 2012, that number increased 54% to $26,530. This has outpaced growth for other types of debt, as the chart below shows.


So what does all this mean for your FICO Score? 

While this increase in interest rate has no direct effect on a FICO® Score (as interest rate information is not captured on the credit report and not considered by the score), it is important to understand that how you manage your student loan debt does have an effect on the score.

Let me set the record straight on exactly how student loan credit is factored into the FICO® Score:

  • A student loan receives no special treatment by the FICO® Score; it is treated like any other installment loan. The score doesn’t employ any variables that specifically evaluate student loan data.
  • It makes no difference to the score if the student loan is backed by the government or a private loan from a lender.
  • A student loan that is reported in deferred status does not receive any “special treatment” by the score.  These loans are considered by the algorithm and can have a positive, negative, or no impact on the score, depending on what other credit information is present.
  • Inquires identified as student loan related searches for credit are included in the FICO® Score’s special inquiry treatment logic.

It’s important to understand that while student loan debt can factor into the FICO® Score, revolving debt (like credit cards) has a larger influence. That’s because we’ve found that revolving type indebtedness has a stronger statistical correlation with future borrower performance than installment loan indebtedness.

While you have limited control over what happens “inside the Capital Beltway”, you do have control over how you manage your finances, and improve your knowledge of what drives your FICO® Score, which can influence your access to affordable credit options.  That’s a lesson we can all benefit from understanding!

Good luck to all students getting ready for the fall semester.

Tom Quinn is the Vice President of Business Development for myFICO, and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives.


Next Article:
How Employment Credit Checks Keep Applicants From Getting the Job


Visit the Credit Restoration Associates Website 

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Good Articles:

The Credit Score That You See is NOT the Same as Lenders See

FCRA Lawsuits Way up. Why?

Thursday, March 7, 2013

How Employment Credit Checks Keep Qualified Applicants From Getting the Job

by Amy Traub


Today, it is common for employers to look at job applicants’ personal credit history before making a hiring decision. According to a survey of human resources professionals, nearly half of employers check an employee’s credit history when hiring for some or all positions.1
 
The practice is hardly limited to high-level management positions: even a brief look at a popular job listing website reveals that employers require credit checks for jobs as diverse as doing maintenance work, offering telephone tech support, assisting in an office, working as a delivery driver, selling insurance, laboring as a home care aide, supervising a stockroom and serving frozen yogurt.2
 
Some employers also conduct credit checks on existing employees, often when they are considering a promotion.

Yet despite their prevalence, little is known about what credit checks actually reveal to employers, what the consequences are for job applicants, or employment credit checks’ overall impact on our society.

This paper, drawing on new data from Demos’ 2012 National Survey on Credit Card Debt in Low- and Middle- Income Households, a nationally-representative survey of 997 low and middle-income American house- holds who carry credit card debt,3 addresses these questions and finds substantial evidence that employment credit checks constitute an illegitimate barrier to employment.
   
Credit reports were not designed as an employment screening tool. Instead, they were developed as a means for lenders to evaluate whether a would-be borrower would be a good credit risk: by looking at someone’s history of paying their debts, lenders decide whether to make a loan and on what terms.
 
Accordingly, credit reports include not only an individual’s name, address, previous addresses, and social security number, but also information on mortgage debt; data on student loans; amounts of car payments; details on credit card accounts including balances, credit limits, and monthly payments; bankruptcy records; bills, including medical debts, that are in collection; and tax liens.
 
Credit reports may be purchased by employers through any number of companies that offer employment background checks (which also may include checks of criminal records or other public data) but the credit portion of the report is typically supplied by one of three large global corporations: Equifax, Experian, and Transunion, which are also known as consumer reporting agencies (CRAs). Credit scores —another product used by lenders which consists of a single number calculated on the basis of information in a credit report—are not typically provided to employers.
 
Employment credit checks are legal under federal law. The Fair Credit Reporting Act (FCRA) permits employers to request credit reports on job applicants and existing employees.4
 
Under the statute, employers must first obtain written permission from the individual whose credit report they seek to review. Employers are also required to notify individuals before they take “adverse action” (in this case, failing to hire, promote or retain an employee) based in whole or in part on any informa- tion in the credit report.
 
The employer is required to offer a copy of the credit report and a written summary of the consumer’s rights along with this notification. After providing job applicants with a short period of time (typically three to five business days) to identify and begin disputing any errors in their credit report, employers may then take action based on the report and must once again notify the job applicant.

Read the entire FANTASTIC paper by Amy Traub here

 

Next Article:  Debt Collection Complaints Rise


Remember, there is never a charge for a consultation with a credit expert. Call us today! 800-648-5157


Visit the Credit Restoration Associates Website 

Back to the CRA blog homepage:
Credit Repair Va:
CRA Resources:
Credit Repair:
About CRA:


Good Articles:

The Credit Score That You See is NOT the Same as Lenders See

FCRA Lawsuits Way up. Why?