Saturday, September 6, 2014

How Closing a Credit Card Affects Your Credit Report and Score

By credit expert: John Ulzheimer:

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:

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,

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 
- Trak 1 Technology 
- Verifications Inc. 
- The Work Number 

Next Article: The Credit Bureaus "Rise to Power"