Seven things you thought you knew, wish you knew or should know about your credit.
- Fact #1: If you contact a credit reporting agency and ask them to remove several old accounts that you don’t use anymore your credit score will likely decrease.
Most people find accounts on their credit report that are listed as open, when in fact they haven't used them for a long time and don't intend to use them again. Credit cards, in particular, are rarely closed unless you specifically ask the lender to close them. You can call or write to the lender (the contact information should be listed on your credit report) and ask them to update your credit report to list the account as closed, and they must do so. Another alternative is to write to the credit reporting agency and ask to have the accounts listed as closed.
But, before you do that, keep in mind you may lower your credit score. If you really want to close out those accounts, do so slowly and selectively. Start with the more recent account, leave the oldest account open, and close retail cards before you closing major credit cards.
- Fact #2: Not all inquiries into your credit history will affect your credit rating.
When any company requests your credit report, it creates an inquiry that is listed on the report. By law, the credit reporting agencies have to disclose all inquiries on your credit report when you request it. But, not all inquiries are shown to lenders or used to calculate your credit score.
"Soft" inquiries are credit report requests you will see, but are not visible to anyone else ordering your credit report. Soft inquiries don't affect your credit score. They include your credit report request, requests when your credit is reviewed for pre-approved credit offers or when monitored by your current lenders.
"Hard" inquiries are credit report requests from lenders when you apply for credit (including services such as cell phone or utility accounts). They do show up on the credit report supplied to lenders and they will affect your credit score. Inquiries count for a small part of a credit score, but it is a good idea to avoid multiple inquiries in a short period of time, especially if your credit isn't very strong.
Inquiries stay on your report for two years, though inquiries within the past year affect your credit the most.
- Fact #3: If you have a collection account on your credit report it remains there for seven years and six months from when you fell behind.
Collection or charge-off accounts can be reported for 7½ years from the date you first fell behind leading up to the collection or charge-off. It does not start when the account was placed for collection or from the date of last activity. This is true whether or not you pay off the collection account.
Example: You fell behind on a payment due January 1, 2000. The account was charged off for non-payment in June 2000. In December 2000, it was turned over to a collection agency. The 7½ year period starts January 2000, when you first missed that payment. The collection agency is required to report that January 1, 2000 date to the credit reporting agency so it won't be reported longer than it should be. This doesn't always happen, so be sure to check your credit report for that detail.
Tip: It's illegal for collection agencies to tell you they can report information forever if you don't pay.
- Fact #4: You decide to cosign a loan for a friend or relative. As the cosigner, you must worry about the debt affecting your credit report even if it is paid on time.
You may want to help out a friend, child, relative or even employee by cosigning a loan for them. Think very carefully before you do. The main reason most people need a cosigner is because they have bad credit or no credit. If they don't manage the new loan well, the cosigner will suffer.
Lenders don't have to tell the cosigner in most cases that the loan they cosigned is not being paid on time. The cosigner may end up with a charge-off, repossession or collection account on their credit report — sometimes without even knowing the loan was behind. If the primary borrower doesn't pay the loan, or files for bankruptcy and includes the debt, the cosigner is responsible for the entire loan plus collection costs.
Even if a cosigned account is always paid on time, the debt will count as your debt for your credit score. And, if you apply for a loan, the loan officer may factor in that debt when determining whether you have enough income to cover a new loan payment.
If you do cosign a loan, make sure you monitor your credit report and step in immediately if the loan isn't paid on time.
- Fact #5: If you have a $3,500 balance on your credit card with an interest rate of 15%. It will take you 19 years and 1 month to pay off the balance if you make only the minimum payments of 2.5%.
Small minimum payments can drag out your credit card debt for what seems like forever. If your balances aren't budging, Visit our Debt Management hardship help assistance for more guidance in how to manage your debt.
- Fact #6: Should you divorce or separate from your spouse, and the joint accounts you both shared become assigned to your ex. You are still responsible for any remaining balance on those accounts — even if those accounts are closed.
It is a good idea to close joint accounts from future charges when you separate or divorce, but that doesn't get you off the hook for any current balances. Joint accounts assigned to your ex in divorce can be reported in both names until you close and pay off, or refinance the account. Information from when the account was jointly held may still be reported for up to seven years if it is negative.
What's important to understand is that even if the divorce decree assigns the debt to your spouse, that doesn't relieve your responsibility for the debt to the lender. The divorce decree is an agreement between you and your ex. It doesn't erase your original contract with the lender in which you agreed to pay back the debt. It is very important, if at all possible, for spouses to refinance joint accounts in the responsible spouse's name only. Otherwise, monitor any remaining joint accounts each month to make sure they are paid on time. If not, talk to your attorney and consider making minimum payments to protect your credit while the matter is straightened out.
Fact #7: You have a fixed rate credit card. Your credit card issuer can raise the interest rate if it applies the new interest rate only to new purchases, not to existing balances.
Card issuers can typically only raise the interest rate for new purchases, not outstanding balances, and require 45-days advance notice. There are a few exceptions to the rules that protect against rate increases on existing balances: you are sixty days late with a payment, you have a variable interest rate, you have an introductory rate that expires, or you are in a workout agreement and don't make your payments on time.