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Your Top 10 Credit Questions Answered

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Consumer credit advocate and author of The Ultimate Credit Handbook, Gerri Detweiler answers your most frequently asked credit questions.

Q: I fell behind on a bill more than seven years ago and it was charged off by the lender. I have now been contacted by a collection agency that has put the debt on my credit report. Can they still collect it after seven years, even if it was charged off? Can I have it removed from my credit report because it is more than seven years old? If not, how does it affect my credit score? If I pay it, will it be removed and improve my credit score? How will it affect my credit if I settle it for less than the full amount?

A: A collection account is very negative as far as your credit is concerned, so you are smart to investigate how long it can be reported and what you can do about it. Here are the answers to your specific questions, and some facts about collection accounts and credit reports:

Usually when you fall far behind on a credit account, the lender will "charge it off." That means they must treat it as a bad debt for accounting purposes, but it does not mean you are off the hook for payment. Usually the debt will be turned over to a collection agency, which may charge additional fees and interest.

As far as your credit reports are concerned, collection or charge-off accounts can be reported for up to seven years and 180 days from date you first fell behind on the account leading up to it being charged off or sent to collections. That is true, regardless of whether it is paid off or not. In case that's not clear, here is an example:

  • January 1, 2000: You miss a payment and keep falling further behind.
  • June 1, 2000: The account is charged off by the lender.
  • December 1, 2000: The account is picked up by a collection agency.
  • June 19, 2007: Collection account and charge off must be removed from your credit reports.

The account can be reported for seven years and 180 days from January 1, 2000 - which happens on June 29, 2007. It doesn't matter when the collection agency bought the account, and it doesn't matter what date of last activity is listed on your credit report.

Under a federal law, the Fair Credit Reporting Act, the collection agency is required to let the credit reporting agencies know the original date the debtor fell behind (in this example, January 1, 2000), and the credit reporting agencies must report that information.

In your case, it sounds like perhaps the collection agency is not reporting the original date you fell behind. It also sounds like this debt may be too old to be reported. If so, you can dispute the account with the credit reporting agencies. Monitor your credit report to make sure it is removed and is not reported again. You can also file a complaint with the Federal Trade Commission which enforces the federal credit laws.

As to your question about whether paying the collection account will help your credit rating, the answer is no. Paid or unpaid, a collection account is a negative item. The same is true if you settle it for less than the full balance. However, if you do not pay a collection account, you may be sued. If you lose the lawsuit, a judgment will appear on your credit report and will hurt your credit for another seven years.

That brings up one more issue to consider: whether the collection agency can still successfully sue you to collect your debt. Every state has what's called "statutes of limitations" for debts. The statute of limitations that applies to your debt could last for two years - or twenty years - depending on the type of debt and state law.

Just as an example, let's say in your case the statute of limitations for this debt is four years. The collection agency can still try to collect after four years, but if it takes you to court, and you can show that the debt is outside the statute of limitations, it would not likely succeed in winning its case against you.

To make sure you understand your rights when it comes to this collection account, it would be a good idea to get legal advice. You can contact a local consumer law attorney or use the Union Plus Legal Services for help. TOP

Q: What is the fastest way to improve my credit score?

A: Most people know that paying their bills on time is important if you want a good credit score. But paying your bills on time is not always enough to ensure a strong credit score.

The median FICO credit score is 723. But FICO scores above 760 are ideal for getting the best credit offers. If you have reviewed your credit and your FICO scores and find yours is lower than you'd like, here are the fastest three ways to help improve your score.

1. Pay down credit cards that are closest to their credit limits. If you are using more than 30% of your available credit on any individual credit card, your score will likely be brought down by that balance. Try to pay down cards that are getting close to their limits as quickly as you can. After you do pay off a credit card, don't close the account, unless there is an annual fee the issuer won't waive.

2. Dispute mistakes that may be dragging down your scores. Many credit reports contain errors. When you dispute them, keep your letter short and to the point, and file a copy for your records. If you request your investigation online, print out a copy of the page before you send it and be sure to note the date you submitted it. Lenders and credit reporting agencies must get back to you within thirty days to tell you whether they are correcting the information or confirming it.

Remember: don't dispute old accounts that still appear open on your credit report. Doing so may lower your score!

3. Use credit (carefully). Many people who have had credit problems in the past are scared they will get in trouble if they start using credit cards again. That may be true, but avoiding credit altogether hurts your credit score. You don't have to carry balances to build credit, but you should use a major credit card from time to time to keep your account active and build a positive credit reference.

Read more tips on building strong credit here. TOP

Q: I have a credit card with a balance of $2,500 and an interest rate of 21%. How long will it take me to pay it off with $100 monthly payments? How much interest will I pay?

A: The good news is that you have decided to commit to a fixed monthly payment to pay off your debt. That alone will save you a lot of time and money! Look at the difference between paying a fixed amount each month, rather than just making the minimum payment:

$2500 balance
21% APR

Minimum payment:
2.5% of balance

Fixed payment:

Time to pay off

26 years, 1 month

2 years, 10 months

Interest paid



Sticking with a fixed payment helps you avoid the trap of letting the balance stretch out for years and years. You will be able to speed up the time it takes to pay off your balance, and save even more money if you can do the following:

  • Lower your interest rate. Call your issuer and suggest you will take your business elsewhere if you don't get a lower interest rate. If they won't budge, consider transferring your balance to another credit card with a better deal. An interest rate of 12%, with the same balance and $100 monthly payment, will save you an additional $470 in interest and you will pay off your balance in just under two and a half years.
  • Add more money. Even if you can't get a lower rate and continue to pay an interest rate of 21%, adding $20 a month to your $100 monthly payment will allow you to pay off the debt in two years and three months, and you will pay just under $637 in interest.

If you are really motivated, you can pay off this debt in one year by making payments of $233 a month (at the same interest rate you are paying now). With a lower rate, you will be debt free even faster. Go for it!

Use this calculator to figure out the cost of minimum payments, and to learn the impact of additional monthly payments on your debts.

Use this calculator to learn what it will take to pay off your balance. TOP

Q: I went through a very difficult time financially including a judgment, auto repossession and foreclosure. I finally filed for bankruptcy. My credit is ruined. How long will those marks affect my credit? What are the best ways to rebuild my credit?

A: It's true that bankruptcy, foreclosure, repossession and foreclosure all hurt your credit - a lot. You may be worried that you won't be able to re-establish credit for along time. Fortunately, though, a bad credit rating doesn't stick around forever. If you take active steps to rebuild your credit, you can see major improvements, perhaps in as little as a year. You won't have squeaky-clean credit anytime soon, but you also may be surprised how much your credit can improve with some effort on your part.

First, it's important to understand how long negative items can be reported on your credit report:

Bankruptcy: All bankruptcies can legally be reported ten years from the filing date (not the discharge date, which is the date when the bankruptcy is completed.)

Chapter 13 bankruptcy: With this type of bankruptcy, where debts are paid back over several years, the major credit reporting agencies will voluntarily remove it seven years from the date of filing. This should happen automatically, but you may want to double-check your report to make sure.

Civil suits or civil judgments: Seven years from the date of entry, or the current governing statute of limitations, whichever is longer.

Unpaid tax liens: Forever if the tax lien is not paid.

Paid tax liens: Seven years from the date satisfied (paid or settled).

Collection or charge-off accounts: Seven and a half years from date the original account first fell behind regardless of whether it has been paid or not. (See example below). It is not affected by the date the account was placed for collection or the date of last activity.

January 1, 2000: You miss a payment and can't catch up on account.
June 2000: Account is charged off by the lender
December 2000: Account goes to collection agency.
The account can be reported for seven years and 180 days from January 1, 2000 - which works out to be June 19, 2007.

Any other negative information (including late payments): Seven years from the date the payment was late.

In addition to the bankruptcy listing on your credit report, each account included in your bankruptcy may be listed as a "charge off" or "included in bankruptcy." Those notations may remain for seven and a half years from when you first fell behind leading up to your bankruptcy filing. Still, any debt that was successfully discharged (paid off or wiped out) in your bankruptcy should list a zero balance. If not, file a dispute. (You may have to provide the credit bureaus with a copy of the page from your discharge papers showing those debts were included in your bankruptcy, so keep a copy of those papers for your files.)

Starting Over

While you may never want to touch another credit card again, to rebuild your credit rating, you must use some credit - though there is no need to carry debt. It will help to have four current, open loan accounts reported with on time payments to all three major credit bureaus.

If you are still in a Chapter 13 plan, where you pay back some of your debts over time, make sure you stay squeaky clean on your payments and do not open any new accounts without first consulting your attorney. Always make every bankruptcy payment on time and call your attorney immediately if you will have a problem doing so. If there are any debts you kept out of your bankruptcy, such as an auto loan or student loan, stay current on those payments.

For more information on building a strong credit rating, click here. TOP

Q: I have good credit history and I am thinking about adding my son as joint account holder with me since he doesn't have much of a credit history. How will his credit affect to my credit report? Would it be better if I cosigned a credit card for him? If he fell behind, how long would it affect my credit report? Would he or I be able to get the lender to remove it from my report since I would be a just a cosigner?

A: Cosigning is tricky. On the one hand, it gives you the opportunity to help your son build his credit history. On the other hand, it can be risky for your credit. (A joint account is just a different name for a cosigned account.)

A few facts about cosigned accounts:

  • When you cosign, you agree to be responsible for the entire loan as if it is your own. If the primary borrower (the person for whom you cosign) pays late, or doesn't pay at all, you are on the hook for the entire loan plus any fees.
  • In most cases, the lender does not have to notify the cosigner of late payments on the account. If the bill goes unpaid, you may not find out about it until you get a call from a collection agency.
  • If the lender reports accounts to the credit reporting agencies, the account will be reported under both the primary borrower and cosigner's names. The account affects both the borrower and cosigner's credit scores equally. The credit score does not handle a cosigned or joint account differently than an individual account.
  • Even if the bills are paid on time, the debt will be included when calculating the cosigner's credit score, and could affect the cosigner's ability to get a mortgage or other loan.
  • Lenders almost never remove cosigners from joint accounts. The account will almost always have to be paid off in full and closed in order to separate yourself from the primary borrower. If that person is having trouble making payments, it is unlikely he or she will be able to refinance the loan in his or her own name.

In your case, it sounds like you are trying to help your son establish credit. Your strategy of adding him to your account could work, assuming you have a good payment history and a relatively low balance on that account. You run the risk, though, that he will use the card and you could be stuck paying those charges.
It could be even worse if you cosign an account for him. You will be responsible for all the charges on the account if he cannot pay them, and he will receive the bills, so you will not be able to monitor the payments.TOP

Q: I have a credit card with a balance of $10,000 at 5.99% APR that I have used to pay tuition, books etc. But I have applied for a Sallie Mae loan to help pay with my daughter's education. Should I use the parent loan to consolidate my credit card debt? How do student loans affect my credit?

A: You can't use a parent loan to consolidate your credit card debt, but going forward it sounds like you and your daughter may need to borrow to continue to finance her education. In that case, you will want to look at educational loan options.

One of the most popular ways for parents to borrow for their children's educations is the Parent Loan for Undergraduate Students (PLUS) loan program. It is part of the Federal Family Education Loan Program (FFELP) and allows you to borrow up to the difference between your child's educational costs and your child's financial aid award package. Parent PLUS loans carry a fixed rate of 8.5% and typically allow you to pay back the debt over ten years. There are also some flexible repayment options if you run into financial difficulties.

If you are not eligible for the PLUS loan, or you need to borrow more than you can get that way, then you can look at a private parent loan. These loans will carry higher interest rates, though, so you will want to borrow carefully.

While student loans are fairly easy to qualify for, parent loans generally require good credit. There may be additional requirements such as:

  • 2 years of credit history,
  • 2 years full-time employment history with the same employer or in the same industry and
  • 2 years at the same residency.

Educational loans are reported on the borrower's credit history as a type of installment loan. Pay them on time and they help your credit history, but if you fall behind, your credit will be damaged. Unlike credit card debt, most educational loan debt cannot be reduced or wiped out in bankruptcy.TOP

Q: I am thinking of going through a credit counseling program to consolidate my debt. I've been making my minimum payments on time, so my credit is good, but I won't be able to keep it up much longer. How will it affect my credit?

A: It's natural to be concerned about your credit rating, since you've worked so hard to maintain it by making your payments on time. You recognize, though, that if you keep treading water the way you are now, one financial emergency will likely sink your whole ship. Plus, your credit scores may not be as strong as you think, due to the high level of debt you are carrying.

A more important question is, "Where do you want to be five years from now?" Do you want to be still struggling to pay off those balances, or debt-free? If the answer is the latter, then a Debt Management Program (DMP) may be an excellent option for you. You will benefit from lower interest rates on many of your accounts, you will only have one monthly payment to worry about (for creditors that participate) and you will see your debt start to shrink, not grow.

Better yet, a Debt Management Program (DMP) offered by the credit counseling agency is not likely to hurt your credit as much as you may think it will. The majority of lenders will not report that you are repaying your account through a DMP. If you stick with your counseling program for at least three months, some creditors will even update your credit report and remove late payments that occurred right before you went into the program.

As far as credit scores are concerned, Fair Isaac, the creator of the popular FICO credit scores does not take into account credit counseling notations on credit reports when calculating credit scores.

You do want to work with a reputable counseling agency, though. Otherwise, if the counseling agency pays your creditors late, your credit history will be further damaged. For more information on credit credit counseling, click here. TOP

Q: I am getting married in six months. How will that affect my credit if my credit rating is good, and my fiancé's credit is bad? When we are married, how will his credit affect our ability to purchase a home? Can creditors come after me for his debts?

A: Your future spouse's credit history will not be merged with yours. Married couples don't have joint credit histories. The only accounts that will be reported on both your credit files will be any joint accounts you have. If you don't add him to your accounts, or vice versa, and you don't open any new accounts together, your credit reports will be completely separate.

If you want to purchase a home, the lender will look at complete credit reports for both of you. If you earn enough income to quality for a mortgage on your own, you will not have to include your future husband on the loan. But if you will be relying on his income to qualify, then he needs to get serious about fixing his credit so it won't cost both of you a higher interest rate.

Creditors cannot come after you for the debts your fiancé incurs on his own. The exception is if you live in one of nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, or Washington. In those states, debts either of you obtain after you get married are considered "community property" and you will likely both be responsible for them.

No matter where you live, you will both be responsible for any joint accounts until they are paid off and closed. Many divorced individuals are surprised to learn that even if their joint debts are assigned to their ex in the divorce decree, they will be on the hook until the account is paid - and late payments by their ex can damage their credit.

It would be smart for each of you to get copies of both your credit reports before the wedding, review them together to develop a game plan, then stash copies in a file in case his debts become an issue for you later.

The bigger challenge for you is sorting out your different approaches to debt and credit before you marry. It sounds like you may have different money "personalities" and that can create problems later. You have probably heard that arguments about money are one of the top reasons for divorce. Two good books for you to read together are Debt Proof Your Marriage by Mary Hunt and Money Harmony by Olivia Mellan. Both are available from Powell's, a unionized bookstore. TOP

Q: I have an Option Adjustable Rate Mortgage (ARM), where I can make minimum payments that are less than the interest due each month. That means my balance is going up, not down. I am making all my payments on time though. Does this hurt my credit score?

A: You are in luck, at least as far as your credit score is concerned. According to Fair Isaac, creator of the widely used FICO credit scores, your credit score will not be harmed by the increasing mortgage balance, as long as all your payments are made on time.

But you know that you will not be able to make minimum payments forever. With interest rates rising, you would be smart to consider refinancing to a fixed rate loan as soon as possible to avoid "payment shock." If refinancing is not possible, talk with a housing counselor sooner, rather than later, to find out what options are available. TOP

Q: I have three credit cards with about $200.00 on each, and one credit card with a balance of $3500.00. All interest rates are about the same. I have $1500.00 to apply to my cards. Would it make more sense to apply the total $1500.00 to the card with a balance of $3500.00, or pay off the three small balance cards first and apply the rest to the one with the large balance? How many points will my credit score go up when I pay off a credit card? If I could pay off all cards at once, would that be worse for my credit score than paying them off over time?

A: Ask this question of three different experts and you may get three different answers! Here are the three most popular ways to tackle this scenario:

  1. Pay off the lowest balance cards and apply the rest to the highest balance card. This advice is based on the notion that you will feel great about paying off your three credit cards with small balances, and will be so excited the momentum will carry over to the bigger job of paying off the card with the large balance. It's something like stepping on the scale and seeing you've lost several pounds in a few days so you're motivated to continue eating well and exercising. The other advantage of this approach is that you will have fewer bills to worry about, so you are less likely to trip up and miss a due date and face late fees or higher penalty interest rates.
  2. Pay off the card with the highest interest rate first, regardless of the size of the balance. With this approach, you are looking to get the biggest bang for your buck. You will save the most money using this strategy, though how much you will save depends on your interest rates on each account. Simply pay as much as possible toward the card with the highest interest rate, and when you have paid off that card, move on to the next one, and so on. In your case, your interest rates are about the same so this strategy may not be as valuable to you as it would be to someone with debt at very different rates.
  3. Strategically pay down your balances to improve your credit score. With this method, you look at your available credit lines on each account and try to get each of your balances down below 30% of your available credit, or even lower if you can afford it. This can boost your credit score, since a high balance relative to your credit limit is an important factor in your FICO credit score. How much your credit scores will change depends on many different factors. But you can monitor your credit scores and use a calculator to simulate changes to your score using myFICO products.  

To illustrate this strategy, let's say your card with the $3500 balance is maxed out, but you have $1000 credit limits on your cards with small balances. Those small card balances are all below 30% of the available credit, so you don't worry about them for now. You can just continue to make minimum payments on them. However, you don't have enough to pay the card with the $3500 balance down to $1050 (30% of the available credit), so instead you apply the $1500 you have toward that card, and get it down to a balance of $2000. You then keep trying to put as much as possible toward that card until you get it below $1050. At that point, when you are using less than 30% of the available credit on each card, you can switch to one of the other methods, above. You may boost your credit scores with this approach, but if they are already strong, or if you have generous credit lines, you may not need to consider this approach.

Your decision about which of these three methods will work best for you depends on the details of your debts, and even your personality. Only you can decide which one will work best for you. But by simply applying that $1500 to your debt you will have already overcome the most difficult hurdle - deciding to use your extra money to pay off your debt rather than spend it!

To answer the last part of your question, you don't have to carry debt to build a strong credit score. When you pay off a card, don't close it (unless there is an annual fee and the issuer won't waive it). Keep it active by using it from time to time for purchases you would make anyway, and pay the balance in full.

You will find calculators that will allow to you see how much you can save by paying down your debt faster here. TOP

Additional information to answer more of your questions is available at Union Plus Credit Education 101, including:

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