5 FAQs About Your Credit Score
Money Girl answers your most pressing questions about credit reports and building a good credit score.
One of the most common topics that Money Girl readers and https://itunes.apple.com/podcast/money-girls-quick-dirty-tips/id209859739 listeners ask me about is credit. So I decided to do a roundup of the most frequently asked credit questions. I’ll cover 5 questions here and 20 more in a video over at .
Question #1: Will Paying Off a Balance in Collections Increase My Credit Score?
Collection agencies specialize in pursuing delinquent debts either as agents for creditors or by purchasing debt and then attempting to collect it. Never ignore a debt so long that it gets turned over to a collections agency because that will definitely cause your credit score to plummet.
Kay asks: I checked my credit score and saw that it dropped over 120 points due to a small balance that just went to collections. If I pay off the debt quickly can I have it removed so my credit score will increase?
Unfortunately, all past due accounts remain on your credit report for 7 years from the original delinquency date. However, you may be able to negotiate with a collections agency to remove an item from your credit report if you pay off your balance in full. The agency isn’t under any obligation to comply with your request, but it never hurts to ask.
Question #2: How Can a Young Person Build Credit?
Building credit is a catch-22. You can’t get approved for it until you have a decent credit score, but you can’t /money-finance/credit/how-to-build-credit without having a positive credit history.
Chasity asks: I’m an 18-year-old college freshman and was declined for several retail store cards. What else can I do to build good credit?
The answer to this common dilemma is to use a https://bit.ly/zvUIKu. A secured card requires you to make a refundable deposit that becomes your credit limit. You have to make monthly payments, just like with a regular unsecured card—but if you default, the card company can tap your deposit.
Quick and Dirty Tip: Only use a https://bit.ly/nfvwSz that reports payment history to the national credit reporting agencies—like the https://bit.ly/nfvwSz. That will help you build a credit history as quickly as possible so you can get approved for a regular credit card or an installment loan.
Question #3: Can a New U.S. Resident Build Credit?
In the U.S. credit scores are tracked by your Social Security number. That means any resident who qualifies for a Social Security number can build a credit file here.
Lauren asks: I moved to the U.S. from Australia and have been working full time for 7 months. I finally got approved for a credit card with a small credit limit but I still have a low credit score. How can I raise my credit score so I can buy a home soon?
with a secured or unsecured credit card doesn’t happen overnight. The length of time that you’ve had credit plays a big role in how credit scores are calculated. So if you’re just starting out, simply focus on what you can control:
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Monitor your credit report to watch for any errors
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Pay all your bills and credit accounts on time
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Keep your balances on credit cards below 30% of your available credit limit
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Don’t apply for a bunch of new credit accounts too quickly
Question #4: Should I Close My Unused Credit Cards?
Many people mistakenly believe that /money-finance/credit/does-canceling-a-credit-card-hurt-your-credit will increase their credit score. In fact, you need to be strategic when it comes to closing credit accounts because it can work against you.
J. asks: I have 6 and always pay them off each month. I want to close 2 of them and get a new card with a better cash back program. Will doing that hurt my credit?
I recommend closing credit cards that you don’t use, or that could get you into financial trouble, except in 3 situations. In I recommend never closing a card that:
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has a high credit limit
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you’ve had for a long time
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would leave you without at least one credit card
Question #5: How Does Co-Signing a Loan Build Credit?
If you have no credit or poor credit, you can ride the coattails of someone with good credit if they’re willing to sign an application with you.
Luke asks: I have good credit and co-signed a car loan with my teenage daughter so she could get a low interest rate. Since I’m going to make the payments on her behalf after she forwards her money to me, will the loan still help her build credit?
When you co-sign for credit, both parties share legal responsibility for the debt. Additionally, the account’s payment history gets reported on both credit files, no matter who actually pays up. So if Luke makes payments on time each month, both he and his daughter will benefit.
But the reverse is also true because co-signing can devastate your finances and credit if you co-sign with someone who can’t or won’t meet their monthly obligation.
Get More Credit Score FAQ!
To get the answers to 20 more frequently asked questions about credit reports and building a good credit score, .
Then download the , a free multimedia resource that includes a video tutorial where I show you step-by-step how to check your credit report. You typically have to pay to get your credit score, but the tutorial also shows you how to get it for free as often as you want, with no strings attached!
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
