Last week I discussed some facts, myths, and misconceptions that some people have about credit cards. If you haven’t read it, be sure to check it out! Now for Part Two.
If I don’t use my credit card, won’t they close the account? Maybe; it depends on the individual company. Usually, the time it takes for a card to be closed is on the order of years. The company might warn you before they close it, other times, they’ll tell you only after it has been closed. I’ll talk about this subject in a future post, but an easy way to avoid problems is to use it once per year for a small transaction.
Checking my credit will hurt my credit score! Another commonly held belief and total myth. Checking your own credit, whether you do it for free via sites like Credit Karma, Credit Sesame, or annualcreditreport.com or pay for it from the individual credit reporting agencies of Equifax, Experian, or TransUnion, will not result in a hard pull and thus will not affect your credit score.
If lower utilization and more accounts are good, should I ask for a credit-limit increase or apply for more cards? Maybe. Before asking for a credit-limit increase, ask the company whether it will result in a hard pull. If they say yes, make sure you have a compelling reason for going through with it, because it will negatively impact your score. Similarly, don’t apply for cards just to have more cards, but do it because you will get some value out of having that card. The only regular exception is that if you’re young, you should try to obtain multiple cards, regardless of the credit limit, and use them responsibly to both have a higher number of accounts and a higher average credit age in the future.
A collection agency sent me a letter. I better deal with it right now before it hurts my credit! Maybe. If you’re already being contacted by a collection agency, then it’s likely already on your credit report. Some less-than-savory collection agencies try to obtain payment for debts that might not be yours or are beyond the statute of limitations for collection. The credit reporting agencies only accept information from certain collection agencies. If it’s not on your credit report, you might be able to ignore it. If it is on your credit report, but you’re not sure that it’s yours, disputing the debt through the credit agencies forces the collection agency to provide proof that it’s yours. If you’re sure that the debt is yours, you should pay it, although you usually have several options for payment and some are better than others when it comes to how it impacts your credit score. I’ll have more to say about debts and collection agencies in a future post.
Balance transfers are a bad idea. Not necessarily. This is also a topic I’ll discuss in a future post in detail, but sometimes balance transfers are a good thing. Balance transfers can be used to pay off other debts or even write yourself a check for cash. Promotional offers are common both when opening a new credit card as well as with existing credit cards when you have a good credit score or good history with a creditor. If you can’t pay your balances in full, using balance transfers is a great way to save on interest. Taking advantage off balance transfers doesn’t hurt your credit score, unless you explicitly open a new card for the purpose of doing one,, which will result in a hard pull and lower credit age.
I’ve never had a credit card and I probably won’t be able to get one now. There’s an element of truth to this. I’ve known lots of people who have eschewed credit cards because they either thought they’d be unable to control themselves or because they got bad advice from family or friends. It can be easier for an 18-year-old college student with no job and no credit history to get approved for a credit card than a 30-year-old with a good job, but no credit history. Regardless of your age, applying for credit with no history may be more difficult. You may have to obtain a secured credit card where you may pay an annual fee and have to deposit money to use it in a similar way to a debit card. If you have to obtain a secured credit card, make sure in advance that the issuer reports it to credit reporting agencies, because some of them do not.
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To Kevin Lewis: You are categorically incorrect.
Debts, and any other information, that is incorrect on your credit report can be removed and any negative effect on your report/score will go away.
When you pay a collection agency that appears on your credit report your score absolutely does improve and, in cases where a more thorough investigation is done (e.g. mortgage application) someone with a credit score of 700 and a debt in collection that is paid off will be looked upon more favorably than someone with a credit score of 700 but that same debt is not paid off. Additionally, depending on the credit score model utilized, paid collection agencies are not a factor in credit score at al.
Additionally, depending on the debt and how you pay it off the account can be removed entirely. The most common instance of this would be with delinquent student loans, but that’s a much bigger subject.
To Kevin Lewis: Kevin, you have more troubles with credit cards, credit bureaus and credit card payments than any other person I know. You continually write things that just aren’t true in my fairly extensive experience in the credit card world. Maybe the problem is you.
terms: The terms “credit report” and “credit score” had me scratching my head, until I went back and re-read Dr. Lou’s blogs. Granted, I’m a slow reader, slow on the uptake, too. I Googled “what does a credit report look like” and got lots of examples. Lots. So, a credit report is in form format. It appears the “score” is calculated by FICO or other entities who use the “credit report” and other sources to come up with a number, the score.
I’ve never been denied credit or a loan or anything, and frankly never checked my “report” or “score” since I never thought about it. But this little bit of digging (next I’ll Google a “credit score” question) enlightened me as to the possible difficulty anyone might have getting straight answers to credit problems. I can imagine it to be like a scavenger hunt, finding the right office or person (though there were online links one could click for questions).