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Ask Susan Responses
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Credit Reporting: Credit Scoring |
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More Ask Susan |
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I have a couple of credit cards with a zero balance, but I haven't closed the accounts. Is it better to leave them open so they show up as long-term accounts or would closing them raise my credit score? -Jim |
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Jim,
The jury is still out on this one! You see, since very few people know exactly what a credit score is comprised of, there are differing opinions. Fortunately, we are learning more and more about scoring models all the time.
Some believe that closing old accounts will help to decrease the amount you are able to charge (called your propensity to owe). This is a good thing. However, most experts believe that closing the accounts could shorten the length of your credit history. That is not a good thing. If I were you, I would check my score as things stand today. If it is good, I'd leave things as they are. As they always say, "If it's not broke, don't fix it!"
The Advice Team |
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I receive many offers from credit card companies every month. My brother, a mortgage banker, has told me that the inquiries made by these companies reflect negatively on my credit report, even though I did not authorize them. Also, one of my creditors, repeatedly runs inquiries. Will these inquiries hurt my credit? If so, what can I do about it? -Tom
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Tom,
The inquiries you see on your credit bureau file where you did not apply for credit, are from creditors who are considering offering you a solicitation for credit. It is a common practice for creditors to purchase a list of consumers. The creditor will want to mail out credit card solicitations to these consumers. But before the creditor mails out a solicitation, they will make an inquiry with the credit reporting agencies. This results in the consumer having a "prescreen programs" inquiry on their credit bureau file. These inquiries are permitted and do not affect your score. Potential creditors where you apply for credit, will not see these unsolicited "prescreen programs" inquiries. You, though, have a right to see these inquiries. That is why they show up on the credit bureau file you received. These "prescreen programs" inquiries will remain on your credit bureau file for one year. Other inquiries, where you initiated the application for credit, will remain on your credit bureau file for two years. There is nothing you can do to have these inquiries removed from your credit bureau file before those time frames.
The Advice Team |
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I recently received my credit score and it was 638.Is this score considered good enough to go out and get a new car loan? -Maggie |
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Maggie,
Unfortunately, the answer isn’t that simple. Different creditors use different criteria when making lending decisions. Also, credit bureau scores aren’t the only scores a creditor may use. Some lending intuitions use their own scores that include your credit bureau score along with other information about you.
I can tell you that the average FICO score is 750. Making an effort to improve your score by using credit responsibly will definitely help you obtain credit at reasonable rates.
Good luck with that auto loan,
Susan |
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My husband and I have decided to pay off all our credit cards before he gets out of law school. Is it okay to pay them off and then close them? Or, should I keep them open for credit history? I have two major credit cards, the other four are department store cards. I read somewhere that closing cards is not a good move for your credit history. -Amber |
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Amber,
That is a very good question. Credit scoring is made up of so many variables that it can be very confusing. On one hand, a long credit history is a positive thing. On the other hand, some creditors consider the amount you are ABLE to charge (called your "propensity to owe"), when making lending decisions. Closing the accounts would also eliminate any potential of fraudulent use.
Personally, I would close several of the accounts with the higher interest rates and keep one or two of the lower interest rate cards for emergencies. When closing an account, do so in writing and keep a copy of the letter for your files.
Best of luck,
The Advice Team |
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Recently I applied for a Visa credit card. I was turned down because they said a quick check of my credit revealed a score of 609 and 650 is required to get a card. Since these numbers don't mean anything to me, I am wondering, what is the range of numbers and what is good and what is bad? -Sandy |
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Sandy,
All creditors have different criteria for what they consider a “good” or “bad” credit risk. The numbers you are referring to are probably from the Fair Isaac (FICO) scoring system. Your credit score is calculated by a mathematical equation that evaluates many types of information that are on your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk. Scores can range from 300 to 900.
Generally, the higher your score, the more likely you are to obtain credit at desirable terms. Since your FICO score changes monthly as new information is added, you can start working on improving your score today by using credit wisely! In the meantime, you should know that just because one lender turned you down for credit, doesn’t mean another would. It is important to shop around.
The Advice Team |
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Within the past year my wife and I have manage to pay off most of our debt. I have clear paid all of my old accounts that were in collection or charged-off. We are trying to reestablish ourselves. We would like to purchase a home soon but, we are not sure if we can get a mortgage without waiting the two years for our credit to get better. What can we do to improve our credit scores to help buy a home at a resonable intrest rate? We've been told our score is about 650 and we need to be at 750 plus to get a good rate. -David |
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Dear David,
Your credit score changes each and every month. As a rule, negative information will remain on your credit report for up to seven years. On the bright side, as you continue to use credit wisely and the past derogatory information ages, your score should improve.
Be careful that you don’t have a lender “check” your score too often. The activity may appear as inquiries on your credit report. Too many inquiries by a lender may actually hurt your changes of obtaining a mortgage. You can check your score yourself without impacting your score in any way.
Good luck in your quest for the American Dream,
The Advice Team |
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