Monday, February 4, 2013

Credit FAQ and FREE credit scores

There is a lot of misunderstanding about credit cards and scores. People either get credit cards and use them uncontrollable or are deathly afraid of them. Hopefully this post and monitoring your FREE credit score will help you better understand how it all works.

Q: What is a credit score?
A: A credit score represents how you have handled your credit. This credit may be a mortgage, credit cards, phone service, utilities services, rent, and other loans and forms of credit. It basically gives you a number to let lenders know how risky you are as a borrower.

Q: Why should I care?
A: If you ever want to get credit in the form of a loan, mortgage, credit card, etc., having a good credit score will help you qualify and the better your score, the lower the interest rate you can get.

Q: How many credit scores do I have?
A: 3. There are 3 different companies, Transunion, Equifax, and Experian that will generate a score. They each have different formulas, but generally they all should usually be about the same.

Q: What is a good credit score?
A: Scores range from 300-850. It is almost, if not impossible to get a perfect score. Any score above 740 is considered "excellent", but getting over 750 is a good goal I would say. Most people fall in the 670-740 range and that is considered "good".

Q: How is my score calculated?
A: There is a special "formula" that each company uses. Although, that formula is not known to the public, there are general guidelines that are used to calculate a score.

Q: Will getting credit cards hurt my credit score?
A: Yes and No. Getting new credit cards will lower your score temporarily, but improve your score in the long run if you use it right. If you apply for too many credit cards in a short amount of time it is a red flag and you will start being denied. Wait 3-6 months and you can apply again. As an example, here is what happened to my score when I got 4 cards in one month about 4 months ago:

It went down, but went back up after a month or two. It will actually continue to improve as the average age of my credit card accounts goes up. This dip is actually more dramatic than what you will find because not only did I apply for a lot of cards but I charged them, which also lowered my score, but went back up because I paid my cards off in full.

If you plan on getting a mortgage, refinancing, or getting other important loans, then it is a good idea to not open (or close) a lot of new credit lines for a year. Especially in the couple of months before trying to get approved, it is not a good idea to open or close any credit lines.

Q: What is a Hard and Soft hit?
A: Hard hits change (lower) your credit score and soft hits have no affect. Monitoring or checking your own score online are considered soft hits. Credit card applications are hard hits. If you are applying for 4 different cards, do it on the same day and preferably at the same time. Credit card bureaus will combine the hits into 1 hit instead of 4 hits if you were to do it on 4 separate days. It takes 2 years for hard hits to not be counted in your score.

Q: How many credit cards can I get?
A: You can really get as many as the credit cards as companies allow you to get. If you get too many cards in a short period of time, then you will start to be denied when you apply for a card. Generally, you can get 3-5 credit cards a year when you apply for them one at a time without your credit score taking a hit. You can get 4 times that or more if you apply for 3-4 (or more) credit cards at the same time without your score taking a big hit.

Q: Will getting a credit card and then canceling it hurt my score?
A: Your score may be lowered when you apply for a card but not when you cancel. It's all about keeping a long average age of your cards. If you already have a lot of cards with a long history the effects will be minimal and vice versa. You want to keep your older credit cards as "anchors" to help keep the average age of your accounts high. It is best to cancel your newer cards. In fact, you can cancel your card and then apply for the same card in 6 months - 2 years (depending on the card) and get the same card again. This is great for more bonuses and rewards.

Q: I'm always asked to open up a credit card at stores such as Macy's, Kohl's, etc. Should I get them?
A: See my previous post about credit card rules. Basically, if you can keep track of the card and not let it influence your spending, then it can be a good idea. For example, I shop at Gap maybe once every year or two. I went to get an outfit for family pictures and was offered a card. I got the card and ended up spending $30 on clothes (after the 15% off and $10 discount) and without even using the card they gave me $50 in Gap money. I don't shop at Gap more because I have the card and I'm able to keep track of it. For me, it was a good deal.

Q: My credit card application was denied. Why?
A: It may be for several reasons and you will get a letter in the mail with an explanation. But if you make a call to the reconsideration department they will often get you the card after speaking to a live person. Here are the phone numbers.

Q: Can my wife or husband get credit cards even though she/he does not work?
A: Yes, her/his income would be considered the same as the working spouse's income.

Q: If I don't use my credit card will it hurt my credit score?
A: No (from my experience and from what I've read)

Q: Where can I get FREE credit scores/reports?
A: gives you a free report (NOT score) once every year. It's a good idea to do this to make sure you are on top of your accounts and to make sure there is no fraudulent activity. -- will give you a free score and report that is based on Transunion. COMPLETELY
                             FREE. No tricks here and no need to enter any credit card. If you have a
                             swagbucks account. You will even get paid to sign up an account. -- Same as above, but it is based on Equifax. Again, you can get free swag bucks if
                              sign up by starting at

I would highly recommend using one or both of these services as it will help you better understand everything I have been talking about.

Please ask any other questions and I would be more than happy to answer.

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