Some questions regarding your credit score

John R. Ulzheimer, the author of “You’re Nothing But a Number" and an expert on credit scores, answered reader questions on credit and the importance of creditworthiness.

Q. I deliberately keep my credit limit lower than what the credit card company will give me on the grounds that should I be hit by fraud, it won't rack up huge charges. Interestingly (no pun intended), a few Saturdays ago I went online to check my balance and discovered what turned out to be the first of several fraudulent charges that, coupled with my usual monthly balance, overshot the credit limit by 79 bucks or so. I do not know when the credit card company planned to notify me but a representative admitted that they should have caught the problem. And yes, I understand that I am not responsible for the fraudulent charges.

Is it a good idea to lower one's credit limit to a more reasonable amount? After reading your column on Oct 10., it sounds like it's not.

A. Ann, it is actually better to have as high a credit limit as possible on credit cards. As you learned through your own experience, you have basically no liability for fraudulent charges if you notify your lender as soon as possible. And the upside to the higher limit is twofold. First, you have access to capital should you need it, which is certainly a good thing these days. The second reason is that you will help to maintain a low "balance to limit" ratio on your credit cards, which is extremely important when maintaining strong credit scores. So if your credit card companies offer you higher limits then gladly take them. Just don't increase your balance or you'll negate any benefit to your scores.

Q. Can you give us guidelines for whether we can cancel a credit card without harming our credit score? I have four credit cards and one of them, my second oldest (since 2001), I don't use anymore. My combined balance is always under 10 percent of my total credit (usually on just one of the cards) and I always pay my balance in full during the grace period. Can I safely cancel the card I'm no longer using? Should I do so, and how?

A. It's almost never a good idea to cancel credit cards. In your case, the reason that your balance to limit ratio is 10 percent is because of that fourth card that you're thinking of canceling. Unless you pay down your balances even more, that 10 percent will increase and your scores will go down. Here's my personal credit card strategy: I have six credit cards with a combined credit limit of $121,000. This gives me enormous flexibility if any of my credit card issuers choose to do something nasty like lower my limits or close an account. It also ensures that my balance to limit ratios never get about a few percentage points because I use my cards modestly and pay them off at the end of the month. I use each of these cards at least once per quarter so none of my lenders close them due to inactivity. My lowest score FICO score is 809.

Q. Please address credit reports and scores for a married couple. Our primary credit card is in both of our names, but we might have other credit data in one name only. If we were to make a major purchase, such as a mortgage, it would be a joint purchase. I'm thinking along the lines of a joint tax return, if there is such a thing as a joint credit score? Is this an issue? Any specific advice for married couples?

A. Good one John. When two people get married at least one typically changes how they use credit. The problem is that credit reports and scores are maintained and generated at the individual level, not the joint or married level. You will always maintain your own credit reports and your own scores, as will your wife. When you apply for joint credit the lender can and normally pulls both your report and the joint borrower's report. Same with scores. And if the account is approved then it likely will show up on both of your reports and will affect both of your scores. This commingling of credit is a necessity especially when you need two incomes to qualify for a loan. But it becomes problematic if or when a couple divorces because the court can't override the original contract with the lender — even though it can assign payment responsibility to one ex-spouse or the other. Frankly, divorce attorneys would better serve their clients if they focused on not only dividing assets but also dividing liabilities at the contractual level.

Some chuck credit cards to avoid late fees

Here's one way to dodge credit card debt and late fees: Don't carry any plastic.

"People look at me like I'm an anomaly. But guess what? It's a whole lot easier when you're not juggling debt," said Paige LeFevre, a 41-year-old Atlanta resident.

The idea of living without credit cards is being given more consideration at a time when Americans hold more than $850 billion in credit card debt, four times as much as in 1990. Of course there are significant benefits that come with credit cards -- convenience being just one of many -- so be sure to weigh them carefully before rushing to close your accounts.

A key concern is the role credit cards play in building your credit and maintaining a credit history. Remember that building good credit is important if you're in the market for a mortgage or other type of loan. Prospective landlords or employers often run credit checks, too. So holding on to your credit cards may be in your best interest.

Credit cards also offer certain consumer protections; for instance, issuers will often refund charges for faulty products. Cards are also necessary to rent a car, and, if managed properly, can reap financial perks through rewards programs.

LeFevre says her vow of plastic abstinence came after she ran up $40,000 in debt while remodeling her home two years ago. But as a homeowner with a steady job for six years, LeFevre wasn't overly concerned about her credit score. She says she hasn't checked
her credit score in recent years, but figures it's better when she's not buried in debt.

"It's just too easy to use," said LeFevre, who works for a retirement investment advising company. She has paid off her debt with a number of drastic measures, including trading in her a car for a cheaper model, getting a roommate and selling many of her belongings. She also axed her cable package, manicures and eating out. She keeps her spending in check by taking out $200 in cash every week for groceries and gas.

For LeFevre and others, keeping plastic around simply leaves the door open for temptation. The reasons for credit card debt no doubt vary, however, and in many cases is the result of financial hardship.

According to the Consumer Federation of America, a nonprofit advocacy group, 58 percent of people with credit cards don't pay their balance in full every month. Those that carry a debt have an average balance of $17,103, according to the group.

It's no wonder Americans are easing up on credit card use. Last month, Mastercard Inc. and Visa Inc. reported credit card spending was growing at its most anemic pace ever.

So how can you cut back? One option is to simply leave your plastic at home for a few months at a time. A credit card only needs to be used about once every six months or so for the credit line on the account to count toward your FICO score, said Barry Paperno, a spokesman for Fair Isaac Corp., the company that created the FICO credit score.

Making small charges on your card once every few months may improve your score more than frequently running up big charges, said Paperno. That's because your credit utilization -- the percentage of your credit line that's in use -- makes up 30 percent of your score. So the smaller your outstanding balance in relation to your credit line, the better.

For the same reason, closing your credit cards could lower your score if you have outstanding debt. If you're still determined to rid yourself of plastic, try to whittle down your balance before doing so. Cancel one card at a time, and wait a few months in between each cancellation to lessen the impact on your score.

For New York City resident Kira Limer, 25, not using credit cards makes it easier to stick to her guiding financial principle: Don't spend money you don't have. It also makes it easier to keep a running tally in her head of how much she's got in the bank. She relies on a debit card for day-to-day expenses. "I just like to know for sure I'm not spending beyond my means," said Limer, a resource librarian at an architecture firm.

How to remove charges from your credit score?

Charge offs stay on your credit report for 7 years from the date of last activity on the account all the while damaging your credit scores. That is such a long time for one mistake to affect your entire financial being. Just one charge off can prevent you from getting credit including; a decent car loan, credit cards, personal loans or can even stop you from qualifying for a mortgage! If you do qualify your interest rate will most likely be much higher costing you tens of thousands on the loan.

Understand that the reporting of items on your credit reports is completely voluntary. No law demands that all your accounts be reported to the credit bureaus. Creditors report at their will.

If you have the ability to pay the charged account do so. The credit might accept less than what is owed as a payoff "in full" meaning that the account is satisfied and closed. What I advise is to have the creditor either update the account to "paid as agreed" "never late" or remove the account in its entirety. Get it in writing if they agree to do so before you send any money as things tend to be forgotten once the creditor gets what they want (your money).

Some creditors will lie and tell you that once a trade line is reported as "charged off" then it must remain that way. This is simply not the case as creditors use software to update the credit bureaus. They can update their reporting at anytime and at their discretion. The simple fact is creditors remove charge offs from credit reports using this method all the time!

If your charge off is already in a paid status then perhaps the only effective way to remove it is to dispute the accuracy of the trade line with the credit bureaus. This is can get a little complicated. There are definite right ways and wrong ways to dispute. If you mess up you can almost guarantee that the charge off account will stay with you for the entire seven years. That is why I recommend hiring out the help. Credit repair is most certainly something you can do yourself...if you have plenty of time to research the dos and don'ts.

Free Credit Report Once a Year - The Best Way to Obtain Your Credit Standing

It is a given fact that when you are credit card holder greater possibilities of more credit debts coming in rather than being settled will usually take place. People from all over the world where credit card served as a major source of trade are facing with a lot of debts from credit cards. There are higher cases of foreclosures and even identity theft, these issues have become rampant at present, and still a lot of people are opting for an instant relief of having credit cards.

With all these factors, the need to obtain your credit report from time to time in keeping yourself updated is deemed necessary. A lot of options can be preferred as a means of getting it. You can easily have access to a free report once you have been declined of your credit card application. You will then be given all the right to obtain a free copy within 60 days duration of time. However, if you haven't taken any application, then obtaining a copy with a small fee is needed in order to get a good view of your credit information.

There are also a lot of ways in obtaining your personal copy and this can be in the form of free credit report once a year. You can call for your personal copy by means of writing to one of the three major credit reporting agencies. Also, to get a free report you will also need to put your information and personal data. This will entail in providing your full name, your address, social security number, date of birth, phone number among many others.

Another option that you can take is by getting your free report online. All you have to do is sign up for online affiliates catering to this kind of services. These services will enable you to acquire your online access and you can get directly to your own information on the net. Queries and access to information can be done at any time. This kind of option is ideal for those credit card holders who are considered as main targets of identity theft. This is also a very convenient way of logging into your personal information online that are easy to navigate and faster to operate. Remember that your account password is needed in this kind of service and this password should be something that is complicated yet easy for you to commit to memory.

Free credit report once a year can be your way of checking your credit standing and doing something to either maintain or make it better that will play a big role in your being credit worthy. There are a lot of ways on how you can obtain your credit information and checking it with careful and keen details is important in avoiding other problems that may occur in the future.

Obtaining your free credit report once a year is also a good way of managing your finances well and keeping up with the standards of the major credit bureause.

Now no need to run after credit score!

Do you really know the purpose of your credit score? Most people know they have a credit score and have some vague idea that it some kind of indicator about their credit but unfortunately that is where the knowledge stops with the vast majority of folks. For as important as your credit score is for a wide variety of things in your daily life, which extends far beyond just your ability to get credit, it is truly beyond comprehension that more people do not pay intense attention to it.

Do you even know what your credit score is right now, or even what it was last month or the month before? Surprisingly, most Americans do not, and even more surprisingly, neither do they care. But the reason they don't care is because they figure as long as they are not getting nasty letters from creditors or phone calls from bill collectors, their credit score must be just fine.

Nothing could be further from the truth.

First let's back up a step. Your credit score is a number which is calculated by the credit bureaus that indicate how much of a credit risk you are. When you go to apply for credit, the lender will pull copies of your credit report and look at that score, which tells him how much RISK he is taking on by approving your loan, and if that risk is uncomfortable for him, he will compensate by offering you financing at higher interest rates.

But simply paying your bills on time is not the only factor that goes into calculating your credit score figure. True, it accounts for about 35% of the score, but where does the other 65% come from?

How close you are to your credit limit on your credit cards plays a significant role. The ideal place to be is about 25% to 30% of your credit limit in terms of your outstanding balance. If you have less than that, then you are not using credit enough to get a clear picture. If you have more than that, then the thought is that you are not using credit responsibly enough. And if you go over your credit limit, that is definite negative credit score points, in addition to the overlimit fees that the card issuer will assess. Talk about adding insult to injury!

As mentioned earlier, your credit score is used in many more places than just when you go to apply for new credit. Various companies use your credit score to determine whether or not they should send you flyers and notices about super special sales, and if your credit score is not up to par, you'll never know about those special sales. Many car insurance companies are now using your credit score to determine what rates to charge you for your car insurance, since they allegedly have statistics which prove that people with lower credit scores make more claims than those with good and higher credit scores. If you are looking for a new job and there are several job candidates that are all pretty much equal, the credit scores of the applicants will play a major role in determining which applicant gets the job, sometimes having more weight than even lesser skills or capabilities.

You need to check your credit report multiple times per year and see what it says about you. There is a better than fair chance that your credit reports contain errors, like some charged off account that does not belong to you but is on your report anyway. This and other similar things will cause your credit score to be calculated much lower than it really should be.

Take your credit score seriously and begin enjoying all the things that a good credit score can provide for you. As credit scores become more and more commonly used in a wide variety of industries and applications, the time you take to improve your credit score will definitely be time well spent.

Save a Buck: Boost your credit score

Want to save $105 a year?

A new study by Washington Mutual estimates that credit card users can do just that if they boost their credit scores by 30 points.

Credit scores are essentially an estimate from the credit companies of the risk that you won't pay off your loan. Credit scores typically range from 200 to 800 and they are used by banks and insurance companies to determine rates for mortgage loans, credit cards, auto loans and other financing.

Some quick tips to boost your score:

Try not to use your credit card to the max. You should have a "usage limit" below 50 percent, meaning if you have a $10,000 limit, try to use $5,000 or less of that amount.

Avoid opening multiple new accounts quickly.

Pay off your debt rather than moving it around. Paying off a large balance improves credit scores.

The scores are compiled by three credit bureaus: Equifax Inc., TransUnion LLC and Experian Group. Consumers can obtain a free copy of their report from all three once a year, but you have to pay about $15 to see the actual scores.

Review your credit report annually

Reviewing your credit report is important to make sure that your information is accurate when applying for a loan. It can also help minimize the damage from possible identity theft. You are entitled to a receive a free credit report every 12 months, so why not request it each year on your birthday?

Your report starts with your personal information — name, address, social security number, telephone number, and employment data. Following that is your account information. Review all the details and make corrections if needed by following the instructions provided.

For each credit account, you will find the lender's name, account number, type of account, and loan information, including your payment history. The credit bureaus also collect information from court records, so don't be surprised to find notes about bankruptcies, tax liens, and/or criminal proceedings that may have occurred. At the end of the report will be a list of any parties who have requested your information.

Potential lenders review your report to determine your creditworthiness. They consider your track record in making timely payments, as well as the total amount of credit you are carrying. They want to determine if you are able to handle monthly payments on any new loans you may apply for.

When you review your report, make sure you agree with all the items listed. If you notice anything unusual it may be an indication that a thief is using your accounts without your knowledge, so review the report carefully and make a list of any incorrect or misleading information. You have a right to dispute incorrect information on your report.

Typically you will receive a form to complete if you wish to file a dispute. When the credit bureau receives your request, it is obligated to investigate within 30 days and to correct any errors. You will receive a report on the conclusion of the investigation, and if your credit report is changed as a result, you should also get an updated copy.

You also have the right to add a statement of 100 words or less to your report, explaining your side of the story with respect to any disputed information.