Welcome to our Top 20 Credit Score Most Frequently Asked Questions.
I probably receive more questions about credit reports and credit scores than any other personal finance topic. So, I wanted to quickly put together an article that answers those questions. At the end, youll find out how to connect with me and how to ask your personal finance question if I dont answer it here.
Question #1: Why is credit so important? What if I just pay for things with cash and forget about my low credit score?
The answer is that even if you choose to never borrow a dime, your credit score still affects your wallet. Things like the rates that are quoted for different kinds of insurance policies, whether you can rent an apartment, get a job with an employer who checks credit, or even qualify for certain government benefits all matter. So until those realities change, it is wise to protect your credit.
Question #2: In order to build credit quickly, is it better to keep a balance on a credit card, or to pay it off and let it sit for a while before using it again?
The answer is that carrying a balance on a credit card from month to month doesnt improve your credit score. It only increases the amount of interest you have to pay. Making charges on a credit card that you pay in full and on time every month is the best way to build and manage your credit.
Question #3: I accidentally signed up for a department store credit card because I thought it was a rewards card to be used only in the store. When I realized that it was a real credit card, I canceled it right away. Did that that hurt my credit?
The answer is that signing up for a retail store card or regular credit card temporarily dings your credit score because its an inquiry on your credit file. Additionally, canceling a credit account can also hurt your score especially if you’ve had it for a long time or it has a high credit limit. But canceling a brand-new card typically wont do too much damage. Always be careful not to sign up for a new card unless you really need it and know how it works.
Question #4: My credit card company canceled my card for inactivity. Why did that happen, and does it hurt my credit score?
The answer is that some but not all credit card companies will cancel your account if you dont use it for some period of time. Their objective is to make money, and inactive customers simply arent profitable. And yes, as I mentioned, having any credit account canceled whether the company does it or you choose to do it can hurt your credit depending on how long you’ve had the card, your credit limit, and whether its your only credit card. The longer you’ve had a card and the higher your credit limit, the more points are taken away.
Question #5: I have a low credit score, but my girlfriend has very good credit. If she has me use her credit card as an authorized user, will it raise my credit score?
The answer is that being added as an authorized user on a credit card can improve a credit score. The problem is not all card companies report their data transactions for both the primary cardholder and an authorized user. So, contact the card company to find out if they would report her transactions on your credit file. If so, that will help you build credit if she continues to make payments on time. However remember that if she makes late payments or default on the debt, then that could hurt your credit.
Question #6: I paid off an old card that was in collections, but it is still in my credit report. How do I get it taken off so it doesnt hurt my credit score?
The answer is all debt records stay on the credit report for 7 years from the date that you originally defaulted even after you paid it off in full. Your credit report exists to show your full credit history to potential creditors. But the good news is that your positive credit history remains in your credit file for 10 years.
Question #7: I have no credit and want to build it up, but no one will give me a credit card or loan. What can I do?
The answer is the best way to build credit from scratch is to get a secured credit card that reports to the major credit bureaus. It requires you to pay an upfront security deposit that means you need to pay collateral if you cant pay your bill. But the key is to sign up for a secured card that reports your payment history to the 3 national credit reporting agencies, so you can start building your credit file right away.
Question #8: Will settling my debt for a lower amount help or hurt me?
The answer is that settling debt is a two-edged sword because it does lower the amount you have to pay which certainly helps but it doesnt remove the negative item from your credit report as I mentioned. Bad debts stay on your credit history for 7 years and having an item that says settled instead of paid in full is not what creditors like to see. Try to negotiate with the credit bureau to report the account as paid in full even if it settled.
Question #9: I recently got a store credit card with a 6 months no interest and racked up about 50% of the account credit limit. What would be the best approach to improve my credit: pay it all off now or take the entire six months to pay?
The answer is paying off no interest cards I recommend that you stretch out the payments so that you keep control of your cash for long as long as possible pay 1/6 of the balance for six months would allow you to take full advantage of the offer and build credit at the same time.
Question #10: Will paying off my past-due credit card balances help raise my credit score? I canceled the card years ago, but now I want to have a card again for emergencies.
The answer is that the best way to raise your credit score is to be current on your accounts. Although delinquencies stay on your credit report for 7 years, the faster you pay them off, the faster you can be rebuild your credit. Older negative items will carry less weight in the calculation of your credit score as you accumulate more items. The only time a credit card will hurt your credit score is when you dont make payments on time. Closing credit accounts can lower your credit score, also.
Question #11: Can having too many credit cards hurt your credit? I have several cards but only use one of them. Will my credit score go up if I cancel the cards that I rarely use?
The answer is that in general because it decreases the amount of available credit relative to your outstanding balances, it will negatively affect your credit score. If you feel strongly about canceling your unused cards, be strategic and cancel the card you’ve had the least amount of time or the one with the lowest credit limit. Also, space out the cancellations over many months, so it doesnt impact your credit all at once.
Question #12: What credit score should I have in order to qualify for the lowest interest rates on a mortgage credit card?
The answer is that creditors establish their own guidelines and breakpoints for doling out credit. But in general, a credit score over 750 is excellent and allows you to get the lowest interest rates on the market. Even getting a mortgage for 1 percentage point less can translate into saving $100,000 or more on the life of a 30-year loan for $200,000. Thats why building your credit score can be one of the smartest ways to build your wealth.
Question #13: I got my first credit card about nine months ago with $1000 credit limit. But I dont want it anymore because there is an annual fee. Will canceling the card hurt my credit score if I have only had it for a short period of time?
The answer is that canceling a credit card with a relatively low credit limit that youve had for less than a year wont reduce your credit score a significant amount.
Question #14: If you have no credit, how long does it take to build a good credit score?
The answer is that the length of time it takes to build a good credit score is different for everyone because when we are just starting out each of us qualifies for different types and amounts of credit based on our income, assets, and job history. As I mentioned, a secured credit card that reports all your transactions to the credit bureaus is a great way to get started.
Question #15: How does getting married affect your credit score? I think it does, but my fiancée does not.
The answer is that your credit scores attached to you as an individual only so getting married has no effect on your credit. If you apply for a loan together, then both of your credit scores, income, and debt will be evaluated.
Question #16: Does checking my file and credit report or credit score hurt my credit?
The answer is no. Checking your own credit never damages your credit score. Its a different type of inquiry the credit bureaus collect called a “soft” inquiry that is never held against you.
Question #17: I recently got turned down for a credit card because my credit scores too low. I paid to get all three of my credit scores and they were very different why is that?
The answer is that having different credit scores from the 3 different agencies is not uncommon. Remember that the credit scores can only be as good as the information in the credit file, so be sure to get any information corrected. But even if all of your data across the credit agencies matches, there will still be differences in your scores because of the different models the companies use. Additionally, your scores change from day-to-day as your account balances change for your payments to merchants are reported back to the credit agencies.
Question #18: I can only get approved for a secured credit card. Does it matter how much deposit I put down the card? For example, will putting down $1000 allow me to improve my credit score faster than putting down $200?
The answer is that the key to use any credit card is to pay it off on-time in full every month. Also, never max out your available credit limit. Keep your credit card balance below 30% of your credit card limit at all times. For example if you put down $1000 deposit you should not charge any more than $300 in any given period. So having a larger deposit unsecured card can give you a larger credit cushion but you can get the same results with a smaller deposit.
Question #19: Ive heard that paying off really old debt can hurt your credit score because it ends up staying on your credit report longer. Is that true?
The answer is no. Unpaid debt gets wiped off your credit report 7 years after the day you initially missed payment regardless of whether you pay it off or not. Some people confuse the 7 year rule as a statute of limitations for debt. Thats a law that prohibits creditors from suing you after a certain period of time. In some states, making a payment on an old debt or even agreeing to a repayment plan can reset the clock on the statute of limitations. But it can never reset your file.
Question #20: I agreed to cosign a loan for a family member and just found out that she made late payments that are hurting my credit. How can I fix this?
The answer is that, when you cosign for a loan or credit card, payment history gets reported to both your credit files whether its good or bad. So, unfortunately, the negative information will stun your credit report for seven years. Always be extremely cautious about sharing credit with someone who you dont have control over when payments are made.
Thanks so much for reading. I hope this article has been helpful for you. Be sure to connect with us on Twitter and Facebook. If you have credit questions that I didnt answer here, go ahead and post them on the Facebook page. If youre interested in learning more about credit, download my free credit score survival kit where I show you step-by-step how to check your how to check your credit report and even high did you credit score for free.