Closing Credit Cards?

Having a good credit score is good for so many things: getting a lower rate mortgage, getting good deals on credit cards and also for hunting a job. Some people tend to cancel their old unused credit card accounts under a wrong impression that getting rid of fat in your wallet might
improve your credit score.

Instead of closing out old accounts, leave them be. The FICO calculator looks at your credit utilization which is measured by the ratio between your credit limit and the amount of balance on your cards. This should be a fraction less than 1. As it approaches 1, you max out your cards. So, closing a old credit card reduces the amount of your available credit without paying down the amount of debt you have. This makes it appear that you are getting closer to maxxing out your cards and hurts your FICO score.

For example, if you have $10,000 of available credit on several credit cards and owe a total of $1,000, you have used 10 percent of your available credit. However, if you close accounts with $9,000 of available credit, you now have used 100 percent of your available credit, and that
isn't good for your credit score.

Sometimes, consumers seek to close out old unused cards with high interest rates just to avoid the possibility of using them. This is called 'a smart consumer point of view' but not a 'smart credit point of view'. Even if you want to cancel (may be just to have a lighter wallet or less number of things to worry about), you might be better off to close the newer cards which are not carrying your long-time credit history and thus are less important from the point of view of the FICO scoring system.

Should Credit Scores Include Utility and Cellphone Bills ?

A proposal is under consideration to change the way credit scores are calculated: It may include non-loan payments such as rent, utility, cable and cellphone bills.

If you don’t pay your utility bill the utility company usually will send it to a collection agency. The collection agency will then report it to the credit report agencies and the unpaid debt will become part of your credit report. The irony of utility bills and other credit-like payments, such as cellular telephone bills, is that if you don’t pay the bill the negative information will become part of your credit report. But if you always pay on time, the positive information typically isn’t reported and so doesn’t help your credit history.

So, some agencies believe that reporting the positive information would be very helpful for many consumers, particularly those trying to establish credit for the first time. That includes young people, new immigrants, and recently divorced consumers, especially women.

Opponents, however, say consumers are better off when credit bureaus don’t know too much about them. Increasing the number of accounts that credit reports track mathematically increases the chances that consumers will make a mistake and be penalized for it. If they miss payments on utility bills in the future, that could lower their credit score, whereas it might have no impact on their score now.

In any case, there are many legal and business issues that must be resolved before the bill takes effect.

Freezing Credit Report

All consumers will soon be able to freeze their credit reports to help prevent identity theft. A security freeze means that your file cannot be shared with potential creditors. Most businesses will not open credit accounts without first checking a consumer's credit history. If your credit files are frozen, even someone who has your name and Social Security number would probably not be able to get credit in your name.

Previously, the three major credit bureaus -- Equifax, Transunion, Experian -- generally extended this privilege only to identity theft victims and residents of states that required it by law. Transunion will be the first to offer security freezes nationwide starting on October 15 and Equifax said it would offer freezes by the end of this month. Experian announced this week that it will make the freeze available to all on November 1.

Generally, it's a good idea to have a security freeze since it provides a strong layer of protection against identity theft but there is this high fee associated with it. A security freeze is free to identity theft victims who have a police report of identity theft. If you are not an identity theft victim, it will cost you $10 to place a freeze with each credit bureau and and another $10 whenever you wish to remove it, though some states do require lower fees.. That’s a total of $30 to freeze your files with all 3 agencies and another $30 to remove it.

This means an average couple would have to pay $180 to freeze their files and then remove them when they need to obtain credit. If you're planning to borrow money soon for a home or a car or open another credit card, you may hold off it for now to avoid the fees and hassles of placing and removing the freeze. Do not forget that a similar situation arises if you'll soon be looking for a new job, when your potential employer might need to look at your credit reports, as we discussed in a past posting.

AnnualCreditReport.com

Back in 2004, Equifax, Experian and Transunion - all three credit reporting agencies joined forces to offer a one-stop free credit report center. This initiative was taken under terms of a new law that, among other things, guarantees every consumer a free yearly look at his/her credit record. The law is called the Fair and Accurate Credit Transactions Act, or FACT Act (visit www.ftc.gov/credit ).

The site for the credit report center is AnnualCreditReport.com which allows you to request, view and print one, two or all three of your credit reports via a secure internet site. Consumers should never provide their personal information to any other company or person for requesting free annual credit reports under the FACT Act.

You can also request the report by phone or mail (these will be processed within 15 days). Their toll-free telephone number (877) 322-8228 Mailing Address: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281

To Stop Credit Card Offers

If you want relief from all those credit card offers that come to your mailbox, which, for example, are trying to attract you with 0% interest for 6 months, while taking away 4% of the amount as transaction fee which effectively becomes a loan for 8% APY? [They are not as Free as they look like.]

Well, there is a way. Simply remove your name from the lists credit bureaus provide to card-issuing banks by calling the toll-free number 1-888-5-OPTOUT.

Occasionally you may miss out some really good offer from competing banks. But a clutter-free mailbox may offer more pleasure to you.

Job & Credit Score

Even before you face the interview board for a new job, there is a strong possibility that the interviewer has already formed an opinion about you – through information contained in your credit report. Increasing numbers of companies are requesting credit reports to assist them in the job hiring process.

Essentially, your credit report is your financial resume and employers use it as an indicator of your personal integrity and how you conduct your life. With that in mind, it's alarming that 79% of all credit reports contain errors. In the competitive job market, an accurate credit history may turn out to be the decisive factor in gaining a job interview. Inaccurate credit reports can negate the most impressive of resumes, and you won't have a second chance to make a first impression.

Many companies are more interested in your financial patterns than your employment background. They want to know if you pay your bills promptly and lead a normal life ... whether or not you would come to work with lots of anxieties inside. So, credit report gives them an idea of how the individual might be expected to behave, if hired.

Rather than getting worried about it, you must try to utilize this recent trend of employer credit checking to your advantage by repairing and/or maintaining a clean credit history and wait 'fully prepared' for jumping into the dream job you are aspiring for.

FICO: Your Credit Score

In several of our past postings we discussed the importance of having a good credit score. Today we want to remind our readers some basic facts about FICO scores, the number that determines your credit-worthiness:

FICO credit scoring system was developed by Fair, Isaac and Co. It ranges in between 350 to 850. More the better. The score tells lenders how likely you are to pay a credit obligation or repay a loan on time. If you have higher scores, you are likely to get lower interest rates in mortgages and sometimes even in credit cards and you'll be more in a position to demand some favors from your creditors.

The following criteria (in order of importance) determines your score:

1. Payment history (if you pay in time)
2. Total amount currently owed (One important criteria is what percentage of your total credit limit you are using currently. As you approach your limit, your score sinks)
3. Length of credit history (established in USA)
4. New credit application (newly opened accounts lower your score)
5. Types of accounts in Use (whether your mix of credit accounts, i.e. mortgages, installment loans (like car loan) and credit cards, is a healthy one. Having too many accounts of one type goes against you.