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| Frequent Questions about Credit |
What is a credit report?
A credit report is a snapshot of how you have paid back the companies from whom you have borrowed money, or how you have met other financial obligations. Each time you borrow, payment patterns are tracked and reported to a credit bureau. Creditors use this and other information to determine your credit worthiness.
What is a credit score?
Your credit score is another tool used by creditors. When you apply for credit, a three-digit score predicts how likely you are to repay the debt. Past performance, current debt load, how long you have had credit, what type of credit you have and how many recent accounts you have opened also factor into the score.
How do I obtain a credit report and/or score?
It is very easy to get a copy of your credit score. There are three major credit reporting agencies: Equifax, Experian and Trans Union. To order your one free credit report from each of these credit reporting agencies, click here .
How long does information remain on my credit report?
Credit reports include information from credit grantors and public records; including bankruptcies, judgments and liens. Active positive information may remain on your report indefinitely, while missed payments and most public records will remain for seven years. The exception is bankruptcies which remain for ten years and unpaid tax liens, which remain on your credit report for fifteen years.
How does divorce affect my credit report and credit score?
In states with community property laws, any debt incurred during marriage is automatically considered joint. Your divorce decree doesn’t relieve you from joint debt. Even when a divorce judge orders your ex-spouse to pay a certain bill, you are still legally responsible for the payments. You may be reported to a credit reporting agency and contacted by the creditor for payment.
How does bankruptcy affect my credit report and credit score?
Filing for bankruptcy is not necessarily the easy way out. There is no guarantee that it will be granted; a court judgment must be made. Even if you only file the papers and don’t go through with it, the bankruptcy shows up on your credit report. Also, not all debts are included in a bankruptcy. Alimony, child support, student loans and tax liens all must still be paid. The bankruptcy will remove many debts but the filing, dismissal or discharge remains on your credit report for 10 years. Obtaining new credit during this time may be difficult.
I noticed that on my credit card statement my APR jumped about 10%...can they do that?
The answer is, unfortunately, yes. The initial disclosure that you received when opening the account would have stated that your rate will be subject to periodic review. If this review reveals recent late payments to your financial obligations, a raise in your rate may result whether the late payment occurred on that particular account or some other account. This is called universal default. It’s the ability of one creditor to raise your rate even if you are current with them, but delinquent with others.
Is it good to keep opening new credit cards and transferring balances for lower rates?
Although a low rate is always better than a high rate, there are some basics to remember if you decide to do the “credit card shuffle”. First, discipline yourself to close the initial card once the transfer of balance is complete. Many consumers fail to do this and find themselves a few months later with two large balances because they started using the "paid off" card again. Next, there is often a balance transfer fee imposed for each transaction so you must consider it in relation to the savings gained by the lower rate. These fees can sometimes be very large. Also, each time you request a new account, your credit profile is reviewed. Having too many inquiries for new credit in a relatively short time span can affect your credit score.
How many credit cards are too many?
More than two major credit cards are considered unnecessary. Carrying a lot of plastic in your wallet can be dangerous for various reasons. Open accounts with no balances are still factored into your credit score because they represent amounts that could be balances owed tomorrow. You are also a target for identity theft. If someone obtains your credit card information, they may decide to start using your available credit. One major credit card with a low APR is ideal,and left at home in a safe place for emergencies.
I’m refinancing my home Is it good to include credit card debt in the mortgage note?
There are pros and cons to including credit card debt in a mortgage refinance. The big pro is that the interest that accrues will be a part of the mortgage interest, therefore tax deductible,while interest on credit cards is not. Another pro is that interest rates on mortgages are typically lower than credit card rates. You need to compare the savings before you decide to include them. The biggest con is when you do not close credit cards that were included in the loan and then run them back up. Now you are facing double payments. Also, they will be using more of your home’s equity to include them.
Is there a website that I can visit to read and learn about sound personal finance management?
Yes, the PA Office of Financial Education offers an all-inclusive web-site for consumers. Visit Your Money’s Best Friend, where you can find answers and information on an array of financial topics. You may also visit BALANCE, our free and confidential financial counseling and education partner.
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