New card offer

If this is a new credit card offer and you move the balance from an older account to the new account, the impact is based upon two factors: 1. whether you close the old account and 2.  the credit limit differences of the new versus old account.   Your credit can be impacted by opening a new account, which means a new inquiry and a newly opened account pulling down the average age of your account history. If you choose to close the older account you will have reduced your overall credit limit by that amount of the limit on the closed card, but if the credit limit on your new account is the same, it’s a wash.

If this is a balance transfer from one credit card to another credit card and no new accounts are opened, it should have minimal impact on your credit.  You have not changed the amount you owe or your credit limits and you have not added a new inquiry or a new account to your credit reports.

Balance transfers can save you a ton of money and buy you time to get out of credit card debt altogether.  There is usually an introductory time frame in which you get a lower interest rate or a 0% interest rate.  If the balance is not paid off within the specific time frame, a higher interest rate goes into effect.  This rate could be higher than the interest rate you were paying on the former credit card.  If you can pay off the balance before the rate increases, you will save money.  If you can’t, you usually don’t come out ahead and pay more in the long term.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Your credit limits are used to calculate “utilization” metrics. Utilization is another way of referring to your “debt to limit” ratio. Your balance is divided by your credit limit, that figure is multiplied by 100 and it yields your “revolving utilization” percentage. That percentage is an important component in your FICO credit scores and your VantageScore credit scores. The higher the percentage, the riskier you are and the lower your score could be.

According to FICO the consumers who have the highest scores have an average debt to limit ratio of 7%.  That means their balance on a $10,000 limit card is no more than $700. And, the aggregate balances on their credit cards is also no more than 7% of their aggregate credit limits.

If the credit limit is missing from your credit report then it becomes more difficult to calculate the debt to limit ratios. But, it can still be done. In lieu of the credit limit FICO’s scores will use the “high balance” figure that is also commonly found on a credit report. If your credit limit is missing and your reported historical high balance is, hypothetically, $10,000 and your balance is $1,000 then you are 10% utilized on that card.

The chain of command goes like this…credit limit is ALWAYS used if it’s present. If it’s not present and the historical high balance figure is…then the high balance figure is used. High balance is never used in lieu of the credit limit figure if the credit limit figure is present.

If both the credit limit AND the high balance figure are missing then that particular credit card is NOT considered for the debt to limit measurements. It can’t be. You have to have some figure with which to divide the balance by.

Score Impact

A missing credit limit can either help, hurt or be neutral to your credit scores.  If your limit is $10,000, and it’s missing, but your high balance is also $10,000 then it’s a wash. If your limit AND your high balance are missing and the credit card is maxed out then it’s helping your credit scores because a heavily leverage card is not being considered in your debt to limit measurements. If your limit is $10,000, and it’s missing, and your high balance is $1,000 AND your balance is also $1,000 then that card is essentially 100% utilized, which obviously is not good. You can play around with the numbers however you like to come up with other scenarios where a missing limit would be helpful, or hurtful.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

There is much controversy over the fairness of reporting unpaid medical bills to the credit bureaus. The issue of medical bills and the impact on credit has even come up in Congress and lawmakers have introduced bills promising to limit the dollar amount of the unpaid medical bills reported to the credit bureaus to only those over $2,500. In fact, the most recent promises to required the removal of all $0 medical collections from credit reports.

The reasoning behind these proposals is that medical bills result from an illness and not normally the irresponsible use credit. Both the insurance coverage and the type of illness/service influence your medical bills.   Since the length of time for the insurance company to adjust the bill can take months, the bill is already past due when the insured receives it.  If there is a dispute, it can take even longer.

Medical bills in collection

Collections are considered a severe delinquency and can deduct a substantial number of points from your credit score. Some credit scores ignore collections under $100, namely FICO 08.  VantageScore 3.0 does not consider paid collections, at all.  Their research suggests that paid collections did not predict that someone would default on an account as well as other credit entries.

Collections remain on your credit report for seven years from the date the original account went into default.  For example, if a medical bill went into default in July 2013 any collection associated with that account would have to be removed from a credit report no later than July 2020.

If you receive a bill from a doctor or hospital, contact your insurance company to verify what they are paying and if any additional adjustments can be made. If the bill is correct and you cannot pay, contact the doctor or hospital immediately to make payment arrangements. You need to do everything possible to avoid the account being sold to a collection agency.

Sometimes it’s better to pay the doctor so that he/she doesn’t place the bill with a collection agency and then argue with your insurance company to get the monies back.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Length of credit

An older age can help your credit score because of the “length of credit history” category, which represents 15 percent of the points in your score. If you have older credit reports because you just happen to be older than, say, someone on their 20s, then you’re earning more points in that category.

Types of credit used

More experienced credit users may also have a more significant variety of “types of credit used” which represents 10 percent of your score points. This equates to having a combination of credit cards, retail cards, mortgage loan, and vehicles loans. Someone who is older would have more of a chance to have a combination of these items than someone that is just starting out.

On the other hand, young people who have had credit for at least two years can still have high credit scores.

Age does not directly equate to a high credit score. An older person usually has had credit for a longer period of time compared to someone new to the credit environment. But, that does not automatically guarantee that they’ll  have good credit.  An older person can have problems paying bills and owing too much, just as anyone else. Any age can have a good credit score by paying your bills on time, in full and keeping your balances low.

Point being, don’t get discouraged simply because you don’t have a longer experience using credit. It’s only 15% of your score points, which means it’s a minor category. Focus on paying bills on time and staying out of debt and then the age of your credit report becomes immaterial.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

“John, I am applying for a mortgage loan and the loan officer is telling me that I have to pay off two ancient collections in order to close on my loan. These collections are from when I was in college for unpaid utility bills.  Stupid, I know. They’re 6 years old and if I understand the rules they have to be deleted in one more year. If I pay them won’t that update the activity on the collection and start the seven year clock over again?”

Answer: As it pertains to the credit reporting of a collection account nothing, NOTHING, can cause the collection to remain on your credit reports longer than 7 years. You can make a payment, pay it off, settle it, dispute it, whatever you like…and you won’t cause it to remain longer than 7 years.

All collections have a date associated with it called the “FCRA Compliance Date of First Delinquency” or “DFD.”  That date represents the date from which the credit bureaus will purge the collection account. The “DFD” is the date the original account (not the collection) went delinquent for the first time leading to the default. So, if you missed a payment in January of 2009 and then missed more payments leading to a default in June of 2009 the “DFD” is January of 2009.  The bureaus can maintain collections for 7.5 years from that date or 7 years from the date of default, which is June 2009 in my example.

That date cannot be updated or it would cause the collection to potentially remain on your credit file longer than allowed by law.

There are other dates associated with collections that WOULD be updated when you make a payment. For example, the “date reported” would certainly change to the then current month/year. But none of the dates outside of the DFD are used as the purge from date.

Now, if I were you I’d still be careful because if you choose to make a payment then you WILL re-age the “time barred debt” date to current. This has absolutely nothing to do with credit reporting but it does reset the clock from which the lender or debt owner can sue you to collect.  But, if you’re paying it off or settling the debt in full you don’t need to worry about that because there’s no reason to sue you on an account that now has a $0 balance.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

The difference is that the three credit bureaus house consumer credit information and LexisNexis houses insurance claim information. Therefore, the actual claim won’t be reported to the three credit bureaus, but outcomes from the claims could.  Two examples are: 1) you could be sued in court to pay damages resulting from the car accident; or 2) the insurance company may not cover all of the costs of the accident and you can’t pay the difference.

Judgments

The first example could result in a civil suit and a judgment.  Even is the judgment is eventually paid and satisfied, the existence of a judgment is considered a severe delinquency and can reduce your credit scores significantly. In addition, it remains on your credit report for seven years from the date filed. And, if it’s refiled (a little trick lawyers play) then it’s another seven years.

Collections

In the second example, you are unable to pay costs not covered by the insurance company.  Failure to the pay bills reflect poorly on your credit. If the bills are turned over to a collection agency, the agency reports this to the credit bureaus. Now you have an account that shows that the original our account was over 180 days past due and was charged-off and also a collection account.  A collection is considered a severe delinquency and can deduct 100 points from your score.  It remains on your credit report for seven years from the time they became 180 days delinquent.

What you may find surprising is that your credit can impact your insurance premium.  If you have poor credit, this could be reflected in a higher premium.  Most insurance claims won’t impact your credit unless something related to it such as unpaid bills, collections or a judgment results.

If you’ve filed an auto insurance claim then LexisNexis likely has a record of it in their “CLUE” database. CLUE stands for Comprehensive Underwriting Loss Exchange.  You can get a copy of your CLUE report, if you even have one, at https://personalreports.lexisnexis.com/fact_act_claims_bundle/landing.jsp.

If you haven’t filed an auto claim in the past seven years your CLUE report will be empty.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

“John, I am in the middle of refinancing my home loan and I’m in the process of getting approved. The lender pulled my credit reports and FICO scores and there’s just no way they’re correct. My highest score is 808 and my lowest score is 802. I’ve never ever missed a payment in my life.  I’m 44 years old and no missed payments. I have perfect credit and I deserve a perfect score of 850 across the board. Why do I contact in order to have this fixed?”

Answer: First and foremost, congrats are your fantastic credit scores. 802 to 808 is indeed rarefied air, credit score style. I understand your complaint and it’s one that I’ve heard many times. You’ve never missed a payment so you should have perfect scores. I’m in the same boat with you.  In fact, we’re almost the exact same age and I’ve too never missed a payment on anything ever.

The problem is that never missing a payment doesn’t mean we’re void of credit risk.  For example, in the FICO scoring system your excellent payment history is only worth 35% of the point in your score, which means 65% of your FICO score points have nothing to do with whether or not you’ve missed payments.

In the VantageScore credit scoring system, which now ranges from 300 to 850, your excellent payment history is but one of six measurements in your VantageScore credit score. Don’t get me wrong, you should and deserve to be proud of your accomplishment but it’s not enough.

Your scores are well past “good enough” to get any lender’s best deal. You accomplished that when you shot past 760. So, while I appreciate the desire to be better or perfect, it’s not necessary to get you the best terms available.

As far as your question, “Why do I contact in order to have this fixed?”  There is nobody to speak with because none of the scoring companies offers “consumer service,” like your cable company or your credit card company. Your score isn’t broken and thus doesn’t need fixing. You’re just not happy with it, which is very different.

I’d also caution you not the make the same mistake that many other consumers make, which is to change your credit management practices in order to improve on your 800+ scores. That’s very dangerous. You’re more likely to lower your scores than you are to improve them. Scores tend to move like water…they’re going to take the path of least resistance.  It’s much easier to lower an 800 than it is to improve it.

Be happy with your scores and don’t get all wrapped up with improving them. Clearly you have proven to the credit scoring Gods that you are an almost perfect risk as it pertains to borrowing money. Be happy with your 800s.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Hard Inquiries

Hard inquiries are inquiries that you initiate when you apply for credit (most of the time).  This results from applying for a credit card, auto loan, mortgage, student loan, or checking account. One exception is collection agency inquiries, which are sometimes classified as hard inquiries.  Hard inquiries can be included in credit scores.  Inquiries don’t have much of an impact on your score. In fact, most of them are ignored (read on).

If you are shopping for a vehicle, mortgage or a student loan, multiple inquiries for these industries are ignored during their first 30 days on file. Then, after 30 days has passed all auto, mortgage and student loan inquiries that occur within a 45 day period are counted as one search for credit. Essentially, you are not penalized for shopping within the first 30-day time frame when shopping for these loans. Please note that the inquiry information is still on the credit report, the logic above is simply how the scoring model considers the information.

Soft inquiries

Soft inquiries are usually not initiated by the consumer and normally occur when a credit card issuer has pre-approved you for credit or are in the process of “account monitoring.”  Soft inquiries also occur when you get a copy of your own credit report. These soft inquiries have absolutely no impact on your scores because scoring systems don’t even see them.  Soft inquiries are not displayed on the credit reports lenders see.  They can only be viewed by you.

Even though hard inquiries remain on your credit report for 24 months, they are only considered in credit scores for their 12 months.  Hard inquiries might impact your score, but they’re not guaranteed to impact your score.  Frankly, I think it’s silly to worry about inquiries. They’re worth the least amount of “points” in your credit scores.  Focus of paying bills on time and keeping credit card debt to a minimum and you won’t have to worry about inquiries.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

“John, I have about $8,000 in credit card debt and a company called me telling me that they can help me settle that debt for about $6,000.  It sounds pretty good but I’m suspicious.  Does that sound legit?  Will it help my credit scores once I’m out of the debt?”

Well, your question actually should be, “Will settlement hurt my credit…not help my credit.”  The short answer is this…if you want to settle a debt then you can do so on your own or use SmartCredit.com’s settlement tool.

Debt settlement companies are for profit and charge consumers huge fees to negotiate payment plans with lenders, which are usually negotiated for less than what is owed. Consumers make payments to these companies then they in turn pay the lenders once they’ve accumulated enough money to make a settlement offer.

You might want to consider credit counseling instead.  If you are in credit counseling, but are not undergoing debt settlement and have made no change to any of your payments or no contact has been made to the lenders, there is no impact on your credit.  If the debt settlement company renegotiated your balance to a lower amount the lender will likely report this on your credit report. And yes, debt settlements are considered negative.

There is nothing a debt settlement company can do for you that you can’t do for yourself, for free. And, here’s what the debt settlement company probably didn’t tell you…you can be sued by your credit card issuer for not paying them while you’re paying the debt settlement company to accumulate your “war chest” with which they’ll use to make settlement offers…eventually.

If your credit card bills are paid on time and then all of a sudden you stop paying them and eventually settle the debt then, depending on the rest of your credit report, it could kill your scores. If you’ve got other unrelated negative items then the impact probably won’t be so severe.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Dispute indicator

The account in dispute will be coded on the credit report to indicate that it is being investigated.  Disputed accounts are all but ignored by credit scores, but are not removed from your credit report while they are being disputed.

If the account in dispute is past due, it can have a negative impact on your scores.  Since it is in dispute, it is not being considered by the scoring models and your scores could improve, albeit temporarily. If the results of the dispute are in your favor, the account is updated or removed permanently, or until the furnisher responds.

Disputing all negative

Some companies will advise their clients to dispute all negative information on their credit reports just before applying for a loan.  The reason is that disputed accounts are almost totally bypassed by credit scores and your scores will likely increase. This tactic isn’t new.

Credit bureaus are allowed to ignore frivolous disputes, per the Fair Credit Reporting Act.  And, lenders are familiar with this tactic and may wait until the disputes have been investigated and resolved prior to approving a loan.

It’s best to dispute the items that you believe are incorrect or cannot be verified.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

To answer this question is prepaid cards and debit cards aren’t extensions of credit so they won’t be reported to the bureaus.

It might be helpful to understand the difference between a re-loadable prepaid card, a debit card and a credit card.  That might be valuable context for my answer.

Credit cards

Credit cards are a true extension of credit. You have to apply for them. They have to be approved. The lenders pull your credit reports and credit scores. They have a due date, a balance, a credit limit, an interest rate and a grace period. These cards are almost always reported to the credit bureaus.

Prepaid debit cards

A reloadable prepaid debit card is not a credit card and isn’t an extension of credit.  In fact, they’re more similar to gift cards you get for Christmas than they are similar to a credit card.

Prepaid debit cards are often loaded with fees.  Many companies charge fees for activating the card, for loading money on it, for each transaction, a monthly fee, an annual fee, for withdrawing money, for balance information, and for other account information.  Even though your money has been loaded onto the card, you still have to pay to get it!  You can reuse the card by loading money onto it, but when the funds are gone, you can’t use the card.  There are no non sufficient funds fees (NSFs) or overdrafts fees, your transaction is declined.

Debit cards

A debit card is directly connected to your checking account, so the funds are withdrawn from your checking account when the card is used.  The risk with checking accounts is not keeping track of your withdrawals, which results in bounced checks. You can be protected against bounced checks, but you still pay a fee for the service, but you don’t have the reversal fees from the company you are paying.

Some reloadable prepaid cards have been marketed as helping to build credit, but that is not true.  They are not considered a loan or extension of credit; they are not reported or included on the credit report.  On the other hand, they can’t harm your credit either.

Debit cards are linked to checking accounts, but checking accounts are not reported to credit bureaus.  Debit cards can harm your credit if you overdraw your account and don’t pay the amount due to the bank.  If the debt is turned over to a collection agency, the debt is reported as a collection and will harm your credit.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

“John, I just converted from paper statements to email statements for my credit cards. I didn’t realize it but one of my statements was going to my junk mail and I didn’t find it until almost a week after the payment was due. I have ALWAYS paid my bills on time and this has me extremely worried that I’m going to end up with a late payment on my credit report. And because the account is joint with my husband he’ll have a late payment as well. That’s not going to go over well. Is there anything that can be done to prevent the late payment from ruining our credit?”

First off, you can relax because your credit (and your husband’s credit) is going to be fine. If you discovered the statement in your junk mail a week after the due date I’m assuming you immediately made your payment, which probably cleared a day or so after you made the online payment. That means you were a week + 2  or 3 days late at worst, right?

That means you were about 10 days late on the account. Thankfully for you the credit bureaus direct their furnishers (like your credit card issuer) to NOT report late payments until the customer is a full 30 days past the due date. The credit reporting agency’s trade association, the Consumer Data Industry Association or “CDIA”, publishes a guide every year called the Credit Reporting Resource Guide, or “CRRG.” That guide lays out the rules and conditions for how items are supposed to be reported to the credit bureaus.

There’s a section called “Industry Standards for Reporting Account Delinquency.” That section reads, “The clock for a 30-day delinquency starts 30 days after the due date, as opposed to the billing date.” That’s means you’d have to be 30 days past your due date before your credit card issuer reports you as being late to the credit bureaus.  It sounds like you made your payment with almost 3 weeks to spare so you should be in good shape.  Still, just to verify I’d wait a month or two and then get copies of your credit reports to confirm.

Let’s put it this way…if you end up with late payments on your credit reports then you were REALLY delinquent. For credit card accounts the issuer has to give you at least a 21 day grace period from the statement closing date (you can thank the CARD Act for that one). So, if you end up with a 30 day late payment on a credit card account it really means you had 51 days to make the payment and still didn’t. (21 day grace period plus another 30 day grace period).

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Placing a security freeze on your credit reports

In order to freeze your credit reports, you have to contact each of the three national credit reporting agencies independently – Equifax, Experian and TransUnion.  The contact can be online for maximum efficiency. This is where you’ll set up your credit freeze.  You’ll set up a login and password/PIN in order to “thaw” or unfreeze your reports. Once you’ve thawed your reports they can be accessed.  And then, you’ll re-freeze them.

Lift a freeze

The freeze can be lifted within 15 minutes to 3 days depending upon state regulations.  To lift the freeze, you contact the three national credit reporting agencies either by email, writing or phone. The freeze is lifted between 15 minutes and 3 days depending upon state regulations.

One of the challenges is to determine the amount of time to lift the freeze when you are applying for credit.   If you plan to be seeking credit, it is not a good idea to freeze your reports.

Who can review frozen reports?

A freeze does not prevent all companies from accessing your credit reports, only new companies or businesses with which you have no relationship. The following companies can still review your credit report, even with a credit freeze:

Present lenders/creditors such as auto and mortgage lenders, credit card issuers, retail card issuers, and cell phone providers can still access and review your report.

Collection agencies working for one of your creditors can access your report.

Cost

It can cost $3 to $10 to place a freeze on your account at each credit reporting agency.  The fee depends upon the state you live in.  It can cost the same to unfreeze your credit report to permit a new creditor to access your credit report.  This fee can be waived if you are a victim of identity theft and have a police report.

If you plan to apply for a mortgage or car loan, you shouldn’t freeze your reports.  Unfreezing your credit reports is costly and it is difficult to time “thaw.”  Freezing your credit report does not prevent fraud on your existing accounts. It only prevents new accounts from being opened in your name.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Debit Cards

A debit card is a plastic connection between you and your checking account. Think of it as a plastic check, to make it simple. You swipe the card and the money is taken directly from your checking account. Like prepaid debit cards, a debit card is NOT an extension of credit and does NOT show up on your credit reports.

With debit cards there are no interest rates, no credit limits and no due dates…it’s not credit. For the younger crowd who will never write a paper check in their lifetime, this is the alternative.

Prepaid Debit Cards

One of the most aggressively marketed financial services products in today’s environment…often with misleading information about cost and credit building attributes. A prepaid debit card is NOT the same as a debit card.  In fact, it’s closer to a gift card that you can buy at the mall than it is to a debit card.

Prepaid debit is a stored value product, which means you load funds or “value” right on the card. It’s not tied to a checking account or any other bank account. If you lose the card, too bad. Prepaid cards also have no credit building value, regardless of what their marketing may suggested.  If you don’t believe me…maybe you’ll believe the credit bureaus…this is what they say in their credit reporting resource guide…in the FAQs section…

Question: “How should prepaid credit cards/gift cards be reported?”

Answer: “Do not report prepaid credit cards/gift cards because the consumer has no credit obligation.”

It’s funny to me that even the credit reporting agencies liken prepaid debit cards to gift cards as they bundle the two in the same credit reporting related question.

Perhaps the most offensive difference between the two cards is the fee structure. Debit cards have no fees, unless you use it irresponsibly and take your balance to below the $0 mark…and then, frankly, you deserve a punitive fee. Debit cards also don’t normally have monthly or annual fees.

Prepaid debit cards, on the other hand, have more fees than a dog has fleas. Reading the fee schedule for some of these prepaid debit cards is like reading a box score of a baseball game in a newspaper.

The choice is yours as to which you should use…if it were up to me I’d use neither.  Credit cards are better than both, cheaper than both, offer more capacity than both, offer better fraud protections than both and help build or rebuild credit.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Charge card

Charge cards can be used to make purchases now and pay later, but when you receive the bill, it is due in full.  You are almost always charged an annual fee, pay no interest and have no set credit limit, but there is an upper boundary of what can be charged (called a “shadow limit”). Charge card examples are some American Express and Diners Club cards. Charge cards are reported on your credit report, but without credit limits, because the limits are not pre-set. Older FICO scores measure them as if they were credit cards, but the newer FICO scores do not.

Credit card

A credit card offers exactly what the name states – credit. Some credit cards charge an annual fee, but most do not.  You don’t have to pay the bill in full in month, you can revolve or pay the minimum, a partial amount, or in full.  If you don’t pay in full, you pay interest on the remaining balance.  There are many credit cards from retailers, banks, and oil companies. There are many examples of credit cards such as MasterCard, Visa, and Discover Card. Some of the familiar retail cards are Sears, Home Depot and Walmart.

There are some similarities between the two cards.  You can charge now and pay later and both help you build credit, because they report to the credit bureaus.

Differences

The differences are that you must pay a charge card in full each  month, there is an annual fee, they don’t report your credit limit, and are not accepted at all businesses.  Since there is not real defined limit, this can hurt your credit because the most you have ever charged becomes your credit limit. Using 15 percent or more of your available credit hurts your credit.  For example, if the most you have charged was $500 and the amount you charged this month is $300, you have used 60% of your credit, even though your unstated limit may be $5,000.

Credit cards are accepted at most businesses and don’t require you to pay in full, but if you carry a balance, you pay interest on the balance.  You can get yourself in debt easily, if you don’t pay it off each month, and you continue to charge on it.

You need to evaluate each type of card and determine which one is the best for you.   You can also have both types of cards.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

“John, I’m trying to re-finance my home. I pulled my FICO scores from all three agencies, and they range from 744-771 which is great. However, the lender tells me they are using something called an RMCR and that the scores they pulled range from 680 to 721 and that’s not the same as the scores I pulled myself. My question is this…Am I stuck with Lender’s info, or can I argue scores I pulled are valid?

An “RMCR” is a Resident Mortgage Credit Report and it’s what mortgage lenders use when you apply for a loan with them. I’m not sure where you got your scores but there is no way to pull actual FICO credit scores from all three of the credit bureaus unless you’re a lender. You might want to double check to see what “brand” of scores those are.

But, to your question…they’re not going to accept your credit reports and they’re not going to accept your scores.  Here’s why…

1.  Fraud – It’s way too easy to doctor 3rd party materials, including credit report data and credit scores.  I remember several years ago when I was still with FICO I’d help with their credit bureau helpline from time to time and I’d get calls from auto lenders now and then asking me how in the world credit reports loaded with negative information could end up with such good scores.  After reviewing a few of them it was obvious that someone at the dealership was changing the scores before submitting the borrower’s application for financing.  These were very easy to identify. I’m not going to say how we’d bust them or they’d just change their tactics.  Let’s just say it takes about 5 seconds to sniff out a fraudulent score.

2. Automated – For better or worse, we live in a world where credit decisions are largely automated. Most lenders, including mortgage lenders, use sophisticated application processing systems that  pull credit reports and credit scores from the credit bureaus, feed that information into their decision models, and then spit out a decision and loan terms. Simply handing over your credit reports and 3 scores that aren’t the same as the lender is using doesn’t allow them to consider your application in the most efficient and logical way possible, to them anyway.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Just as you would assume thin would mean lean, slim or slender, a thin credit report is lacking in credit history and contains very few accounts.  This would represent someone new to credit who does not have much credit in their name.  Some examples are:  someone new to the work force, students, people new to the U.S, widows, and divorcees.

Credit information is used to assess credit worthiness and a limited credit history with few accounts makes it challenging for lenders to access risk.   Credit scores give unique treatment to thin reports and evaluate them as their own group (against their peers), instead of comparing them to thick reports or those with many accounts, years of credit history and mixture of different types of accounts.

Thin credit reports can receive a credit score, but there are certain requirements that have to be met and can differ depending upon the score.

FICO scoring criteria

In order for a credit report to receive a FICO score, the credit report must meet the following criteria:

1.  The credit report must have at least one account the has been updated in the past six months. The date used is the date the information was updated on the credit report, which is the “date reported” field.

2.  The credit report must have at least one account that has been opened for a minimum of six months.  The date to determine this is the “date opened” field on the credit report. The account has to be at least six months old.

3.  There is no deceased indicator on the credit report.  This can occur if the individual listed on the credit report is deceased, or if the individual shares an account with someone who is deceased.

One account can meet the first two requirements.  An account that is 1 year old and has been updated in the past 6 months will qualify the consumer’s file for a FICO score.

VantageScore scoring criteria

A VantageScore credit score can be calculated on a consumer’s credit report as long as there’s an account (more formally referred to as a “trade line”) that has been updated in the past 24 months, based off the date reported. If, however, there is no account information available in that time frame, the newest VantageScore credit score may be able to generate a score based on older data or solely on non-account data such as collection information, public record information and inquiries.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Before you are able to afford to purchase a home, you’ll usually rent an apartment or a house, or live with your parents or family member until you have enough money to buy your own home.  Your rent represents a large percentage of your monthly payments, just as a mortgage does.  How well you pay your rent is a good indication of how responsible you are in paying your debts.  Now we just need to see it on a credit report!!

Tenant screening companies

There are companies that maintain databases of rental information; local and regional companies that compile this information. These companies collect information from all over the place including tenant eviction court records. Some receive information reported from rental companies, which includes rental performance history and rental applicant data.

Experian acquired Rent Bureau in 2010 and now includes rental trade lines on their credit reports.  This information is not compiled by the other two credit reporting agencies – Equifax and TransUnion.  And, this information is not currently considered by the FICO score but is considered by the VantageScore credit score.

Rental information on credit report, indirectly

Information related to non-payment of rent, breaking a lease, eviction or owing damages can be reported on your credit report.  If the leasing company turns your account over to a collection agency to collect the unpaid rent or unpaid damages to the apartment, it will show up on your credit reports in the form of a collection.

Another way rental information can end up on your credit report is if the leasing company sues you for breaking the lease. This is a civil judgment and can be picked up by the credit bureaus since it’s a public record. Civil judgments remain for seven years from the filing date.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Credit reports

Credit reports are compiled from data collected from lenders, collection agencies and public records. Lenders that  contribute data include credit card issuers, finance companies, mortgage loans, and vehicle loans.  Public records are usually tax liens, bankruptcy filings and civil judgments. There are three companies that compile this information, which are referred to as consumer credit reporting agencies.  These companies sell this information to whomever has a legal right to see it.

FICO scores

FICO used their knowledge of modeling and statistics and applied it to the credit industry, using credit report data to build their scores.  Since the score is derived from the credit report, the credit report is required to calculate the score. FICO also developed the software that scores the credit reports, but this software is housed at the credit bureaus and run against the credit reports.

Each credit bureau enters into separate proprietary agreement with FICO regarding the score and usage of the development data. Every time a FICO score is calculated by a bureau they must pay FICO a royalty for the use of the model.  Because of the royalty issue, these guys were created as an alternative to FICO scores…

VantageScore Solution’s credit scores

VantageScore Solutions is the newer kid on the credit scoring block and my estimates have them at having 8-10% of the credit score market share. Much like FICO, the VantageScore scoring model is installed on the mainframes of the big three credit bureaus so credit data can be filtered through their model thus yielding a score.

FICO scores sold to consumers

You may wonder how FICO gets the scores they sell to consumers on myfico.com. When FICO receives a request from a consumer for their credit file and score, FICO electronically sends to Equifax or TransUnion (Experian doesn’t sell the FICO version to consumers) the name, address and Social security Number of the consumer. The bureaus use this information to locate the credit report, score it through FICO’s software and send the information back to FICO. FICO delivers the credit report and score to the consumer, along with information on how to interpret the score.

The answer to the question: Neither FICO nor VantageScore calculates their own scores. The score calculation is done by the credit bureaus. Only the credit bureaus have the two things needed in order to calculate a score: the scoring model and the credit report. FICO only has the model. VantageScore only has the model. You have to marry the two things together and only the bureaus have the two things! Great trivia question!!

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Auto Industry version

Lenders in the auto industry, which include banks, dealers, and auto finance companies, usually use the auto industry version of the FICO score. This version is built specifically for the auto lending industry to predict that an auto loan will become 90 days or more past due within the next 24 months.  As with the classic FICO score, the auto version differs at each bureau. There are at least two versions of the auto score at each bureau, because there is a transition period getting lenders to switch to a newer version.   Just are there are many different version of Microsoft. Therefore, your score can also differ at each lender depending upon the credit bureau they use and the version.

FICO scores at myfico

When you order your credit report and FICO score from the myfico.com site, you have a choice of the Equifax or TransUnion version of the FICO score.  The Experian version is not available for consumers to purchase. None of the industry specific versions, including the auto version are available for consumers to purchase. Therefore, the score you receive will not be the same.

Since there are many versions of the FICO score, the decision was made to make things less complicated and only offer the classic FICO score to consumers.  You would have to pay for a different FICO score based upon what loan you were applying for. In addition, you would need to know which bureau the lender was using.

The classic FICO score gives you an overall rating.  If your classic FICO score is good and you have paid or are paying your auto loan on time, including all of your other obligations, your auto score will also be good.  If you have been delinquent on your auto loan, then your FICO auto score will be much lower than the classic score.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.