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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 3-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 3 major Credit Reporting Agencies: Equifax, Experian and Trans Union. For a fee, you can request your report from any or all of these agencies by phone or on-line. We’ve made it easy for you, just click here to learn how.
How long does information remain on my credit report? Credit reports include information from credit grantors and from 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 will haunt you for fifteen years.
How does divorce affect my credit report and credit score? In community property states, any debt incurred during the marriage is automatically considered joint. Your divorce decree doesn’t relieve you from joint debts. Even when a divorce judge orders your ex-spouse to pay a certain bill, you are still legally responsible for the payments and 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 bank 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 or not 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 because you are delinquent with others.
Is it a good idea 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 of all, you’ve got to 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 2 large balances because they started using the “paid off “ card once 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? I have tons but only a few have balances. 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 as they represent amounts that could be balances owed tomorrow. You are also a target for identity theft; if someone obtains your credit information, they may decide to start using your available credit. One major card with a low APR is the ideal,and left at home in a safe place for emergencies.
I’m refinancing my home, is it a good idea 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, where left on credit cards it is not. Another pro is that interest rates on mortgages are typically lower than credit card rates. You need to compare savings before you decide to include them. The biggest Con to this is when someone does not close the credit cards that were included in the loan and runs them back up. Now they are facing double payments. Also, be aware that you will be using more of your home’s equity to include them.
Is there a website that I might visit to read and learn about sound personal finance management? Yes, the PA Office of Financial Education was pleased to recently launch an all-inclusive website for consumers. Visit Your Money’s Best Friend, where you can find answers and information on a multitude of financial topics. You may also visit BALANCE, our free and confidential financial counseling and education partner.
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