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Frequently Asked Questions About Credit

We'll help demystify the details of anything credit-related.

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 creditworthiness.

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 TransUnion.

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 10 years, unpaid tax liens, which remain on your credit report for 15 years, and student loans which can remain as long as 25 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 can be included in a bankruptcy. Alimony, child support, student loans, and tax liens all must still be paid. The bankruptcy will remove some unsecured debts, but the filing, dismissal, or discharge remains on your credit report for 10 years. Obtaining new credit during this time may be difficult.

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 transfer 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, left at home in a safe place for emergencies, is ideal.

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 and you will be using more of your home's equity to include credit cards.

Is there a website that I can visit to read and learn about sound personal finance management?

Yes, you may visit GreenPath - link in new window to greenpath website Debt Solutions, the website of our free and confidential financial management program partner.

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