Earlier this month, Experian director of public education, Rod Griffin answered questions about credit scoring and credit reports. The live chat event was moderated by CreditCards.com editor-in-chief Dan Ray. Experian is one of three credit reporting agencies. Below are answers to some of the most frequently asked credit questions. Note: The questions and responses have been edited for clarity.
Q: How many credit cards and installment loans should a person have to create the best score?
A: There is no perfect number. What really is important is that you manage the cards that you have well. Make all the payments on time and keep the balances low. All you really need is one or two. If you do that you’ll have a good credit history and a good credit score.
Q: When do foreclosures drop off your credit, or do they?
A: Eventually they will. The good thing about credit history is that it is not permanent. All of the negative information eventually falls off and for foreclosures it’s seven years from the date the foreclosure was filed.
Q: What are some of the things that people [incorrectly] think affect their credit score?
A: The things that people think do affect their credit score, like employment purposes, insurance purposes, pre-approved credit offers. Those are things people think will affect credit scores and don’t.
Q: I had messed up credit, but now I’m behaving myself. How soon can I expect my credit score to rise?
A: Credit reports are unique to the individual, so it depends on how long you’ve had credit problems and how severe those problems were, if you’ve had delinquencies, in collection accounts and bankruptcies, it’s going to take you longer to rehabilitate your credit report than if you’ve had just one late payment recently.
Q: How do you handle applying for credit in one spouse has bad credit and the other has a good credit rating?
A: With mortgage lending, the lender is going to look at both credit histories so we advise people to always get your credit report at least several months in advance of making a major credit application or major credit purchases. Especially something like a mortgage; that will let you begin to address any issues you have. Again, it may be necessary that the couple, if one person has a very serious problem with their credit history, one individual may have to qualify independently or it may be that the one individual’s credit history is strong enough that together they still will qualify. But you really need to look at taking time to improve that person’s credit history. And again, it depends on that individual’s situation as to how long it will take rehabilitate that history.
Q: Why are there accounts on my report that I haven’t used in over 10 years?
A: If you haven’t used them for over 10 years and have a zero balance and no late payments, they’re probably going to be coming off very quickly. Open accounts with positive credit remain indefinitely, so that could be the answer. If they’re open, active and never had any problems, they’ll stay there until they’re closed. Once closed, they’ll be deleted 10 years from the close date. Positive information will outlast any of the negative information. That helps you rebuild a credit history if you’ve had difficulty.
Q: Is it a good idea to close a credit card after you’ve paid it off? How does that affect your score?
A: When you close an account, what happens is you lose that available credit. You have a credit card account with a zero balance and a $10,000 limit. You close that account, you lose that $10,000 limit so it makes your utilization rate jump back up and makes it look like there’s suddenly this sign of risk…You need to look at your total financial picture as well. If you have great credit scores and you’re not thinking about applying for credit in the near future and you don’t want that account — maybe you should close it anyway. You might see a small decline in your credit scores, but probably not enough to affect your ability to get credit. On the other hand, if you have really bad credit scores; you’re having trouble managing the debts and you have an account with a zero balance you are tempted to use it, you might want to close it too. Not because you’re worried about your credit score, but you don’t need the temptation to take on additional debt when you’re already having problems. Don’t get too focused or paralyzed by the number and consider your overall financial picture.
Q: How long does an IRS tax lien stay on your report?
A: Unpaid tax liens remain 10 years. That’s the good news. The bad news was it used to say for 15 years, so it’s a little less time. But if it’s unpaid, it will stay for 10 years on your credit report. A paid tax lien stays for seven years.
Q: How does divorce affect shared accounts?
A: I think the majority of questions we get from people with problems stem often from divorce. And the challenge is that if we have joint accounts, the divorce decree does not separate your responsibility. The divorce, very simply, is an agreement between you and the court so that could be the first issue if you have joint accounts with your ex-spouse. You need to go back to the lender and have them agree to change the contract responsibility.
Q: When is bankruptcy removed from your credit report?
A: Chapter 13 bankruptcy, under which you repay a portion of the debt, is taken off after seven years from the filing date. Chapter 7 bankruptcy remains for 10 years because you don’t repay any of the debt, so it stays a little bit longer.
Q: How many times can my credit be checked for a car loan before my score is lowered?
A: As many times as is required within typically a 14 day period. With mortgage loans and auto loans credit scoring systems count all auto inquiries and all mortgage inquiries within a 14 day period as a single inquiry. So auto dealers, for instance, do something we call shot-gunning. They’ll send your application to a bunch of different lenders to try to find the best rate and that’s recognized you’re only buying one car you’re not opening 20 different auto loans, so the credit scoring systems recognize that and count all those inquiries as a single inquiry. So you don’t need to worry about the inquire affecting your credit score for an auto loan if you apply within a short period of time and most people do.