Category: Credit Report

If you need your true FICO score and/or report, myfico.com has a coupon currently valid for 25% off your order: HOLIDAY25. This offer is valid until November 30, 2007. (via SD)

Note that if you are only interested in looking at your report (and don’t need the score), you’re entitled to one free credit report every 12 months from each of the three credit reporting bureaus. You can request your free reports through annualcreditreport.com.

Freezing your credit report should soon become an option for security-minded consumers in all 50 states. A couple of weeks ago, TransUnion reported that it would allow consumers to freeze and thaw their credit files as a means to prevent identity theft. Yesterday, Experian followed suit by announcing they would also offer such a service. The third major credit bureau, Equifax, claims that it will be offering the same service soon, as well.

A credit freeze blocks access to a consumer’s credit report and score, making it significantly more difficult to obtain new credit. Currently, consumers in 15 states don’t have this ability. (For credit freeze rights in your state, see this page.) Freezing your credit won’t help, however, if an identity thief already has access to your credit accounts.

If you are a victim of identity theft, the credit bureaus will allow you to freeze your file for free. Otherwise, they will charge either $10 to add, lift or remove a credit freeze, unless a lower fee is mandated by state law. This means it will probably cost you $30 to place freezes across all three bureaus.

TransUnion’s service is planned to go into effect on October 15, while Experian’s will go live November 1. No date has been set for Equifax as yet.

I’m not sure how or when this idea spread, but at some point in the personal finance online world, it became a generally accepted fact that you should never close a credit card account because it will hurt your credit score. I’ve seen this idea pop up in numerous online forums and in the blogosphere from very knowledgeable posters.

To be fair, there is certainly merit to this position. I would even go so far as to say that it’s a useful rule of thumb. But to paint it as a black and white issue, as an absolute not to be questioned, is where I take issue. There are circumstances where I would argue that accounts should be closed. There are also times when closing an account could actually help your score.

When should an account be closed?

To me, an obvious instance when an account should be closed is if it has an annual fee and the account is one that you could live without. Why pay the fee for a card you will never use? If the only reason you would keep the account open is for your credit score, that is not a compelling enough reason. You should keep your credit score high enough so that you can profit from it, and not maintain it for its own sake. Besides, as long as you have other lines of credit that you maintain responsibly, you’ll eventually recover from any short-term hit to your credit score that closing the account would cause.

How could your credit score be hurt by leaving an account open?

According to this booklet from myFICO (page 12), one of the factors that weighs into your credit score is the average age of your accounts. Consider the very simple example where you had 10 accounts, 5 of which were open for 10 years and 5 of which were open for 5 years. If you closed a few of your accounts that were open for 5 years, that would obviously push up the average age of your accounts and presumably help your score.

Another nebulous factor in your credit score is the “mix” of credit that you’re using (page 14 of the booklet). That is, your score considers what types of credit accounts you have and how many of each. Your score also looks at the total number of accounts you have. How adding or subtracting accounts will affect your score in this respect is very murky.

I have to wonder what correlation exists between closing a credit card account and your likelihood of repaying a debt. If there is no such correlation, then one would think that the credit scoring model should not be penalizing anyone merely for closing an account.

Ripped from SD:

1. Go to www.truecredit.com/code
2. enter code CNAA DHSC WHXB YWDB
3. Log in if you have an existing TrueCredit account or create a new one

The code expires May 4, 2007 and entitles you to:

• Unlimited TransUnion Report and Score*
• 1 year of TransUnion Credit Monitoring
• 1 year of Identity Theft Insurance*

See www.truecredit.com for more details.

Edit:   It looks like this deal has been expired prematurely and is no longer available.

With so much at stake in credit scoring these days, it’s not surprising that people are looking to game the system for profit. This article describes a new practice to boost your credit score that is being promoted by many Internet-based companies. The technique is quite simple, and I imagine it’s quite effective, though its ethics are questionable at best. Basically, it entails people with good credit histories renting out a piece of their credit profile, by adding authorized users to established accounts for a fee:

Some Web-site promoters say they can add 80 to 120 authorized users onto a high-quality credit-card account before banks or lenders get suspicious. Each account can rent for as much as $1,500 to $2,000 for a 180-day usage. The primary credit-card holder receives a cut of the rental fee, often hundreds of dollars for each authorized user added to the account.

The person seeking a higher credit score does not obtain actual access to the credit card. But within 30 to 90 days of being added to the account, the national credit bureaus incorporate the primary cardholder’s ongoing account information into the files of the authorized user. The score-raising attributes of the primary cardholder’s stellar payment record then flow through to the new user.

Why does this work? When someone adds you as an authorized user on their credit card account, the credit card company has the option of including the account’s information in your credit report. Some companies will exercise this option; others may not. Should the credit card company include the account in your report, for credit scoring purposes, it’s as if you were the owner of that account since its inception. As a consequence, when you are added as an authorized user of a very old account with a high credit limit and an excellent payment history, that rubs off on you in a very positive way. It helps for at least a couple of reasons: 1) the older the accounts you have open, the better, and 2) it should decrease your overall credit utilization.

Normally, you wouldn’t add someone as an authorized user unless they’re a relative or someone you really trusted. But there are apparently no restrictions on either the relationship or the number of authorized users that can be added to an account. This lends itself to abuse as described above.

To be honest, I don’t know the reason why authorized users are treated like this in the credit scoring’s system in the first place, but you would think that there would be easy remedies. For instance, why treat authorized users the same as a primary account holder? And shouldn’t it be easy enough to flag the cases where there are an excessive number of authorized users on a single line of credit?