Credit Town Hall Questions and Answers
Below are additional questions aksed which were not answered during the live town hall. View the questions and click to see the answer.
- I don't want my kids to repeat our history. Is there Experian education that is aimed at teenagers?
It is never too early to begin teaching your children how to use credit wisely. You can find answers to your questions about minors’ credit online by visiting Maxine Sweet’s consumer credit advice column, Ask Experian.
Experian.com/CreditEducation and LiveCreditSmart.com are two great resources for anyone trying to learn, establish or rebuild credit. This online resource provides borrowers with tools to successfully manage their credit and protect against credit card fraud.
- If a person always pays cash for everything but only needs to borrow money for a home purchase, how will their lack of credit affect them?
An established credit history is a necessity if you plan to make a major purchase. The only way to build good credit is to use it wisely, over time. Your credit history serves as your credit references. A positive credit history demonstrates to lenders that you will manage your credit well. Paying your previous debts responsibly gives lenders confidence that you will repay them as agreed, too.
Credit scores are used to analyze the information in your credit history to help creditors gauge lending risk. People who have demonstrated that they consistently repay debt responsibly will have strong credit histories represented by high credit scores, indicating they represent a low level of risk for lenders. If you have little or no credit history, you have no record of responsibly managing credit upon which lenders can predict the likelihood that you will repay your loan.
- If you are not able to make payments, what is the best way to minimize the effect on your credit report?
Paying your bills on time is the single most important contributor to good credit. Missed payments negatively affect your ability to get credit since they indicate a stronger likelihood that you will miss payments again or will be unable to pay your debts in the future. If you know that you are going to fall behind on your payments, contact your lenders, which may work with you to set up a different payment schedule or reduced interest rate. You may also consider contacting the National Foundation for Credit Counseling for solutions to your current financial problems and to help you develop a personalized plan to pay down your debt.
- How do you calculate a credit rating?
The information included in a consumer’s credit report is translated into a number that represents the relative lending risk represented by your unique credit history. Credit scores, or credit ratings, enable lenders to evaluate the level of risk involved in extending credit to that person. People who have demonstrated that they know how to manage debt responsibly generally receive high scores as these consumers represent a low level of risk for lenders.
Most credit scores incorporate these key factors:
- Payment history: late payments are the number one factor that negatively affects credit scores
- Utilization rate: how much of the total available credit a person has used. High balances on credit cards is a strong indicator of credit risk
- Depth of credit: the length of a person’s credit history and the types of accounts they have had. A long history of good credit management is a strong indicator of good credit risk. A mix of credit types such a credit cards and installment loans help show a person knows how to manage all types of credit well.
- Recent credit: what a person is doing in the recent past is increasingly important. Making late payments within the past few months will have a stronger impact on credit scores than late payments that occurred several years ago.
- What things make the most difference on a credit report to raise a rating … to lower a rating?
Paying your bills on time and keeping your balances low are the two most important contributors to a good credit score. Even if the debt you owe is a small amount, it is crucial that you make payments on time. Payment history accounts for 32 percent of your VantageScore. Keeping your balances low compared with credit limits shows that you aren’t tempted to charge more than you can pay and can handle larger amounts of available credit.
- If I apply for one new credit card, how does it change my rating?
Simply opening the account should not have a negative impact on your credit in the long-term. In fact, it can increase your total credit limits and help improve your utilization ratio.
However, recent inquiries on your account indicate you may have taken on new debt that isn’t yet shown on your credit report, and many inquiries in a short time might suggest you may be trying to live on borrowed money – which can temporarily reduce your credit score.
- What happens if someone steals my identity and ruins my credit?
If you suspect you have been the victim of identity theft, the first step is to notify law enforcement and file a formal police report as it is illegal to steal someone’s identity. Once you have done so, contact the various credit reporting companies (Experian, Equifax and TransUnion). Add fraud alerts to your credit reports to help stop credit fraud resulting from the identity theft. Providing a police report will enable the credit reporting companies to begin deleting fraudulent information and work with your lenders to remove fraudulent account information. In addition to the credit bureaus, you should also contact all credit issuers, utility companies and collection agencies that have opened a fraudulent account to work with them to remove inaccuracies. Once you have removed any fraudulent activity, you may also want to consider using a service to proactively monitor your credit and identity for any significant changes, such as Experian’s ProtectMyID.com.
- If a teen does not have his or her own credit card, but is an authorized user of a parent’s credit card, are they building credit?
Yes, to help them establish credit, you might consider putting them on your account as a joint user, designating them as an authorized user on your account or even co-signing for an account in their name. If they are a minor, the information will be collected and updated, thus building a credit history, but their report will be suppressed until they turn 18.
But there are some steps that should take place first.
- The first step to help children build a healthy credit history is to make sure they understand what credit is, how it works and that the bills have to be paid every month.
- There are new laws that make it harder for young people to get a credit card on their own, so it creates the perfect opportunity for you to be very involved in helping them get credit and learning how to use it.
- Most importantly, hold them accountable for their purchases. Even if you are the one funding the bills, consider depositing the amount you are contributing into a checking account so that your child actually has to pay the bill each month and manage the debt.
- And, realistically, you have to be willing to make the payments if your child can't.
- Keep in mind, as a joint account holder, the account will appear on both your credit report and your child’s. If they fail to make a payment it will hurt your credit history, and if you fail to make a payment, it will hurt theirs.
- Are gas credit cards a good idea for young people to start out with to build their credit?
Even accounts with small balances can help. The issue isn’t how much credit you have available, but rather how you manage the credit you have at your disposal.
You do need to be aware that some gas cards are charge cards, meaning you are required to pay the balance in full each month. Such accounts won’t hurt your credit history if they are paid on time, but they likely won’t be as positive as credit cards that are paid on time with low balances.
Credit cards allow you to revolve a balance, or carry a balance from one month to the next. Because you control how much you pay and whether or not you charge to the limit, credit cards demonstrate even more clearly that you can responsibly manage credit. By charging a small amount on at least one card and paying the balance on time, you will show that you can handle larger amounts of available credit. Eventually you very likely will be offered accounts with larger balances.
In fact, one of the best ways to build a strong credit history is to start small and build up. That doesn’t mean you should go out and apply for a bunch of retail credit cards or gas cards. You only need a few accounts reported to the credit reporting companies.
As the positive history on those accounts grows, your creditworthiness will grow with it.
- Why should a financial lender report to you or another bureau? What's in it for them? What's in it for me?
Potential creditors review credit reports primarily in order to evaluate risk. They try to predict whether you'll repay your debts on time. By participating in the credit reporting system, lenders are actually able to extend more credit to more people with lower risk than they could if they did not participate in the credit reporting system. From a consumer standpoint, the United States national credit reporting system makes credit available more quickly and at lower cost than almost anywhere else in the world. It also enables you to move from one part of the country to another and still have access to credit you may need. For example if you move to another city, your credit history will enable you to rent an apartment or buy a house, establish utility service, establish telephone service, rent a moving van, buy new furniture and perhaps even qualify for a new job.
- Are there certain kinds of bills that will help give you more points than others? For instance, a credit card compared to hospital bills?
Paying your bills on time is the single most important contributor to good credit. For those lenders that already report your payments to the national credit reporting companies, paying them on time will contribute positively to your overall score. For other bills, such as hospital bills that are not necessarily reported to credit bureaus it is still important to pay them on time. If you do not, you could be reported to a collections agency, which will negatively impact your credit file. Late payments negatively affect your ability to get credit since they indicate a stronger likelihood that you will make late payments again or will be unable to pay your debts in the future.
- After paying off collection accounts, how can I get it off my credit report?
Collection accounts are deleted from your credit report seven years from the original delinquency date of the original account. That means it will be deleted seven years from the date that the original account first became late and was never again made current.
- One of my students received a credit card offer, which requires no co-signer and no proof of income, even though she is under 21. Don't the new laws require one or the other?
Under the new credit card laws, which took effect in February 2010, no one under the age of 21 will be approved for a credit card offer unless a parent or guardian or spouse is willing to co-sign, or the young adult shows proof of sufficient income to cover the credit obligation. The solicitation may have been an “invitation to apply” rather than a preapproved credit offer. If so, proof of income or a co-signer may have been required after responding to the invitation.
- Does Experian have a phone number so I can talk to someone?
Experian believes we can best assist consumers who have received a copy of their personal credit report. Once you receive your report, contact us at the number displayed on your report for assistance. Or, for questions about credit in general, check out the Credit education section of our website at Experian.com/CreditEducation
- Will getting approved for a car loan, and making timely payments, raise my Experian credit score, and how long will it take?
There is no way to improve your credit score overnight, however, the fastest way to see an improvement in your score is to make timely payments and pay down your debts. So, congratulations! You are on the right track! A credit score reflects credit payment patterns over time, with more emphasis on recent information. If you have negative information on your credit report, time is your ally in improving your credit scores.
- I used my son’s name for credit without his knowledge. How can I fix this? Because of me, his credit rating is not nearly as good as it should be; he has always paid his bills on time.
By using your son’s identifying information to obtain credit, you have committed fraud. As this is a legal matter, I suggest you seek proper counsel from an attorney on how best to proceed.
- My credit score in December 2010 was 788. Today I was notified, after I paid off a car loan after five plus years and paid off two credit cards, that my score went down to 780. Why would your credit score go down after paying off a loan and two credit cards in good faith? Also, I was 30 days late on one payment over the past 10 years and that was because I was deployed to Afghanistan on short notice. I notified the lender and they still reported me for being 30 days late just that one time. I disputed this claim and my dispute was denied. I filed a claim with the Better Business Bureau and I also sent a letter to my Senator with no response. My score at that time was 816 and then it dropped 46 points to 770. As soon as I returned from deployment, I paid the account in full. Just wondering how this service works and why disputes are not addressed with something more than a standard form letter?
Great job paying off your car loan and credit cards! Your credit score is considered very good, even with the slight decrease, so from a creditworthiness standpoint you need not be too concerned. To address your first question, there are a number of factors that can affect your credit score. An eight-point decrease is actually very small and may not have had anything to do with paying off the car loan or credit cards. Credit scores fluctuate over time as debts grow older, late payments become further in the past, account balances decrease or increase, new account information is reported; old account information is deleted and other factors change. It is quite likely that if you check your report again in a few months it will have increased to the previous level or higher. To have good scores, it is important to keep using at least one credit card, keeping your balance low and paying it in full each month to demonstrate that you are currently managing credit well.
In general, here are some of the major factors that can influence your credit score:
- Payment History - Repayment behavior (satisfactory, delinquency, derogatory)
- Utilization - Percentage of credit amount used/owed on accounts
- Balances - Amount of recently reported balances (current and delinquent)
- Depth of credit - Length of credit history and types of credit (revolving credit such as a credit card with a Visa or MasterCard logo; charge cards such as a gas card or an American Express; installment credit such as a mortgage or car loan)
- Recent credit - Number of recently opened credit accounts and credit inquiries
- Available credit - Amount of credit available
To address your second question, in this instance, the lender has responded to the dispute that the account is accurate as reported, so Experian must report it as such. You can add a statement to the account explaining why it was late. Lenders will be notified that the statement is on file, which gives you an opportunity to explain why the payment was late if it is an issue with the lending decision. We encourage you to add a statement of dispute anytime you disagree with the results of a dispute.
- 1.) Do employers actually pull the credit report from the credit reporting company or do they pull just the score? 2) Do they have to pay for it like creditors? 3) If the applicant is denied the job due to the report can the applicant get a free report from that credit reporting company? 4) If there is a credit freeze on the report, can they pull the report or will the applicant have to thaw (remove a security freeze) the report? Any information would be great on this topic.
- Employers never get a credit score. Unfortunately, that is a very common misperception.
- Employers get a modified version of your credit report. An employment credit report is stripped of any information that would violate equal employment opportunity laws. So, there is no information about age, gender, or marital status. Account numbers are also deleted from employment reports because they are not needed for employment purposes.
- If the credit report plays any part in a decision that negatively impacts the consumer, federal law requires the company to give the consumer a copy of the report along with a written description of the consumer’s rights.
- When you freeze your credit report, you prevent access to it by potential employers until you lift the freeze. As a result, a frozen credit report could interfere with your ability to get a new job unless you manage the freeze carefully. You will need to have the freeze lifted each time a prospective employer wants to check your credit report.
- I was told my credit score can decrease if I pay off all my credit cards. That sounds crazy. Is that true?
Simply paying down your balances will not hurt your credit over time, however, paying off your cards and then closing your accounts can hurt your scores to some degree because doing so reduces the amount of credit you have available and may increase your balance-to-limit ratio, also called your utilization rate. Also, if you leave the cards open, but stop using them, you aren’t adding positive activity to your history. You need to use at least one card, keeping the balance low and ideally paying in full each month, to demonstrate that you are currently managing credit well.
Generally, if you can responsibly manage the cards, it is a good idea to keep unused accounts open in order to maintain a low balance-to-limit ratio.
- Why do scores vary so much from report to report?
There are many different scoring models that are used for many different purposes. The most important thing to understand is where you fall in the range of risk indicated by each scoring model. While the numerical range for each may be different, your credit history will likely place you in a comparable place in the spectrum of risk and creditworthiness.
- I have a large personal loan with someone who happens to also be a small business owner, is it likely that loan will show up on my credit report? They did check my credit before giving me the loan!
The loan will not be part of your credit history unless the small business owner reports its accounts to Experian. The best way to find out if it will appear is to ask the business if it reports account information and to check your credit report to see if the account appears in it.
If the business reviewed a credit history before making the loan, an inquiry will appear in your credit history as a record of that review.
- Is it better to buy a used car or new car?
There are many pros and cons to buying both used and new cars and the best choice for you is dependent on your personal preferences and financial situation. Educating yourself on your financial standing as well as the current auto loan market and the history of the car you want to buy will help you drive off the lot with the knowledge that you made a sound investment. A few key things to consider are the financing options you may qualify for, depreciation rates and any available dealer incentives. Before purchasing a used car, it is a good idea to review a vehicle history report. The report may alert you to problems such as title fraud, flood damage or accident history that is not otherwise evident. You can purchase a vehicle history report from Experian at http://www.autocheck.com.
- How can I recover my credit freeze pin? I have misplaced it.
- Is it legal for a creditor to repeatedly report your debt (same debt) to the reporting agencies?
An unpaid debt may be reported for up to seven years from the date of the first missed payment. Even if the debt is sold to another company, it may be reported by the new owner until the seven years elapse.
If you suspect there is an error in your credit report, you have a right to dispute that information.
The first step in disputing something in your credit report is to get a copy of your report directly from Experian. You can do so at www.annualcreditreport.com for your free annual report; directly from www.experian.com for a fee unless you have been declined based on an Experian report or qualify for a free report for other reasons; or through a subscription credit monitoring service such as www.freecreditscore.com.
Obtaining a report from Experian through any of those services ensures you have the most recent information in an easy-to-read format. The report will include instructions to contact Experian to dispute anything you believe is inaccurate.
Simply follow the instructions included with the Experian report to dispute any information you believe is being reported inaccurately. You will be able to submit the disputes online, by telephone or by mail. In most instances, entering disputes online results in the fastest resolution. Experian will communicate your dispute to the creditor that is the source of the information.
The law allows 30 days for the dispute process and we must allow creditors that long to respond. Experian will notify you of the dispute results as soon as the dispute process is completed.
- Do I have to prove that an item is an alleged error on a report or is it the credit reporting agency's responsibility to prove it is accurate? And, what is the best way for a consumer to dispute an item?
The first step in disputing information is to request a copy of your report directly from Experian and review it carefully. If you find an error, simply follow the dispute instructions online or call or write the credit reporting company (as instructed on your credit report). There is no fee to dispute credit information.
The credit reporting company will check with the source of the information and send you an update. The source of the information must review its records and notify the credit reporting company of the results of its investigation. The source of the information will inform the credit reporting company to delete the information, update the information, or continue to report the information as it is. If you continue to disagree with the information, you can add a statement of dispute to the credit report. Please be specific with your dispute. The credit dispute process can take up to 30 days from the date the dispute is received. Experian will notify you of the dispute results as soon as the dispute process is completed.
If your records do not agree with the lender who reported the information, it is often a good idea to contact the lender directly to identify why and to determine if you need to provide them additional documentation so they can update their accounts and change the way the report your history.
- If I detect fraud or identity theft on one of my reports what will the agency do?
If you suspect you have been the victim of identity theft, the first step is to notify law enforcement and file a formal police report as it is illegal to steal someone’s identity. Once you have done so, contact the various credit bureaus (Experian, Equifax and TransUnion) to work to correct inaccuracies on your report and have anything that is fraudulent removed. In addition to the credit bureaus, you should also contact all credit issuers, utility companies and collection agencies that have opened a fraudulent account to work with them to close the fraudulent accounts and remove inaccuracies. Once you have removed any fraudulent activity, you may also want to consider using a service to proactively monitor your credit and identity for any significant changes, such as Experian’s ProtectMyID.com.
- I can't pay my entire mortgage this month but think I can in 3-4 months. Will that affect my credit?
Paying your bills on time is the single most important contributor to good credit.
Missed payments negatively affect your ability to get credit since they indicate a stronger likelihood that you will make late payments again or will be unable to pay your debt.
- How best do I save for three kids going to college?
Beginning to save or increasing the amount you’re saving can seem difficult, but it is possible. Here are some general tips to help you get started:
Reduce your existing debts. Continue paying at least the minimum on all of your accounts. Pick one and put as much extra toward it as you can until it’s paid off. Once paid off, take a portion of the payment amount and deposit it in a savings account each month. Put the rest toward another debt, and be mindful of which accounts you continue to use.
Save your change. Over several months it can add up. Deposit your coins in a savings account once or twice a year. You might be surprised. It could add up to hundreds of dollars.
Find ways to reduce your spending. Do you really need all those cell phone minutes? Do you use coupons at the supermarket? Could you cut out a cup of coffee or two each week? Maybe take lunch to work rather than eating out every day? You really have to use your will power and say no to optional shopping. You and your kids really don’t have to have all that “stuff.”
Consider an automatic deposit savings plan. Talk to your bank or credit union and ask if it has a program to deduct a small amount directly from your paycheck and deposit it in a savings account. Automatic deposits let you “pay yourself first” and avoid the temptation of spending the money impulsively.
Review your credit report at least once a year and use it as a financial tool to understand where you fall in the range of risk for lenders.
- What is the best way to protect myself from identity theft?
Always exercise caution when sharing any personal information. According to protectmyid.com here are some other proactive steps you can take:
- Don't access secure websites, such as online banking, from shared computers or in public.
- Use the privacy settings on social networking sites to ensure you're only sharing information with those you trust.
- Only provide your Social Security number when necessary, such as for employment, tax forms or bank records.
- Be careful opening files, links, emails, etc. from unknown sources or from a friend's account that may have been hacked.
- Check the security of online stores before you purchase.
- Shred all sensitive information before throwing in the trash.
- When sharing personal information with certain professionals, such as tax preparers or mortgage lenders, ensure you’ve chosen companies that you trust.
- My house is losing value rapidly. At what point do I fold the cards and let the house go?
Foreclosures and short sales (settling the account for less than you owe) are both going to weigh the same on your credit rating and drop your credit score. The best advice is not to wait too long to talk to someone about your options. Most credit counselors offer free budgeting workshops and consult with consumers to decide if a loan modification, short sale or foreclosure is the best course.
- Maxine, you answered the teacher’s question earlier in the webcast by suggesting parents get involved. Many students today do not have involved parents in their lives. What suggestions do you have for teachers in these situations? (Please also mention the Jumpstart Coalitions in each state that can help.)
There are a number of great financial and credit education resources available to teachers and students. The JumpStart Coalition for Financial Literacy maintains a clearinghouse of financial literacy resources that can be searched based on subject matter, age-appropriateness and other criteria. Experian also provides a number of resources you can adapt to your classroom to teach fundamental credit concepts. Visit http://www.experian.com/consumer-education-content/index.html for links to Experian’s consumer education documents, videos, PowerPoint presentations with talk notes and other resources. At www.LiveCreditSmart.com you will find tips and tools people of all ages can use to help them be credit wise.
- If I receive my first credit card at age 22, and I have no other credit, where do you think my credit score will start? Will it be high, low, or what?
The only way to build good credit is to use it wisely, over time. If you pay your bills on time and keep your balances low, you are on the right track. As you continue these habits and begin to add other credit accounts to your history, your score will continue to improve.
- Approximately seven years ago I took a loan on my home's equity. I had five credit cards that had outstanding balances. I made settlements with all five of those card companies. The closing attorney paid the cards off with some of the equity funds, I just went to purchase a new vehicle and found out that all those credit cards are still on my credit report as not paid. I found this out from the finance manager of the dealership. The closing attorney has all five of the cancelled checks. What do I do? Do I get an attorney?
As this is a legal matter, I am not at liberty to provide you with advice. You should seek proper counsel from an attorney on how best to proceed.
- What steps do you recommend for someone to take to reestablish credit after a bankruptcy?
Filing for bankruptcy can have serious consequences on your credit. A bankruptcy will stay on your credit history for up to ten years and will negatively impact your credit score. If you were able to keep a credit card account open, the best things you can do to improve your credit are to use the card, keeping your balance low and paying in full each month. If you had to close all of your cards, you may have to open a card secured by a savings account. It’s difficult, but you have to be patient. You didn’t get into credit trouble and have to declare bankruptcy overnight, and you can’t improve your credit overnight. It might take months, or maybe even years, but keep doing the right things, and in time you will restore your strong credit history and be able to qualify for new credit at good rates.
- Regarding inquiries for mortgages and car loans and the impact on your credit score. I've always heard that within two weeks for cars and four weeks for mortgages it counts as one inquiry. Are those time frames correct? Is it still only one inquiry if no purchase is made?
Inquiries for auto loans are treated the same way as those for mortgage loans by most scoring models, so having multiple lenders check your credit history when you are shopping for a car likely will have little or no impact on your credit scores.
Dealerships will send your application to multiple lenders for consideration and will offer you the loan with the best rate. You might also have one or more lenders pre-approve your application before negotiating with a dealership. Typically, that process happens within a very short time, usually with 14 days. For that reason, many credit scoring systems count all inquiries for auto loans that occur within a 14 day period as only one inquiry. That minimizes or eliminates any impact on your credit scores so you can shop for the best loan offer.
- Does a public judgment (other than bankruptcy and tax liens) fall off the credit report after seven years regardless of if it's paid? Does a collection account fall off after seven years even if it's not paid?
A civil judgment will be deleted seven years from the filing date, even if it is not paid.
A collection account will be deleted seven years from the original delinquency date of the original account even if it is not paid.
- As a consumer, how can I have enough credit history on one or two credit reports but not on a third? Why don't all credit reporting agencies report credit utilization?
What information and to what degree the information is presented can vary among the various credit bureaus. This can be due to a number of factors, including the fact that the creditor may not report the debt to all agencies. Also, some reports may be updated before others, so if you open or close a new file, or have another significant update to your credit file, it might take each bureau different amounts of time to show it on the credit report, although the time difference is usually very short.
Utilization is not a piece of data that is reported. It is a ratio that is calculated by scoring models based on the balances and the credit limits that are reported for each account.
- Is there somebody at Experian who I can ask questions as they come up in the future?
For general questions about credit, check out the credit education section of our website or submit your questions to the “Ask Experian” column at Experian.com/CreditEducation.
For specific questions about your credit, Experian can best assist consumers who have received a copy of their personal credit report. Once you receive your report, contact us at the number displayed on your report for assistance.
- If I'm not supposed to get a credit card, how do I build credit?
The only way to build a good credit history is to use credit wisely and to demonstrate responsible use of credit over time. Paying bills on time and keeping credit card balances low are two of the most important things you can do to build positive credit.
If you are having trouble qualifying for new credit, you may also consider taking advantage of a secured credit card (as long as your lender reports secured accounts to national credit reporting companies) to build a positive credit history. You deposit funds in a savings account to guarantee that your charges on the card will be paid if you fail to pay as agreed. Use the card sparingly and pay off the balance each month. Overtime, you will build a history of positive credit management and qualify for a traditional, unsecured credit card.
It is a good idea to have at least one credit card. Credit cards have an important impact on credit scores because you choose how much to charge and how much of the balance to pay each month. Because you are free to make those decisions, a credit card gives unique insight into how you manage your credit.
Having and using a credit card should not be a negative thing and should not mean that you are taking on debt. If you only use the card for purchases that you can afford and could have paid for with cash or check, and then pay the balance in full, you are getting all the benefits of credit. You pay no interest, you have positive cashflow, you have a statement to help you track your expenses, you can earn rewards, and you are building your credit references for when you need them. That is a good thing!