April 7th, 2011
Credit 101: Your Credit Glossary
*Welcome to our weekly credit lessons to brush up on your credit know-how!*
I’ve worked at Credit Karma long enough to have picked up on some terminology related to consumer credit: hard inquiry, credit score algorithm, credit utilization, derogatory mark, and more. For the most part, entire articles could be written on each of these terms, each one comes with its own implications for your credit score and credit health.
Here’s a basic glossary of credit terms, helpful as a reference tool, for those new or knowledgeable on credit, to help you better understand your credit life.
Bankruptcy: Filing for bankruptcy means that you have requested legal assistance to pay off your debt. Because it is one of the worst negative records you can have you your credit report, it is usually the last resort for financial protection. A bankruptcy will remain on your credit report for seven to ten years.
Credit bureau (or credit reporting agency): Credit bureaus provide lenders with consumer credit reports and credit scores. Consumers can also request this information from the bureaus, often as a paid service. The three major national credit bureaus are Equifax, Experian, and TransUnion.
Credit Card Accountability, Responsibility And Disclosure Act of 2009 (CARD Act): Enacted to limit the ways in which credit card companies can charge card users, the CARD Act prohibits such actions as arbitrary interest rates increases and peddling credit cards on college campuses. It also requires issuers to consider an applicant’s income before credit card approval, among other things.
Credit check (or credit inquiry): A credit check happens when a lender, a company, or a bureau looks into your credit report and credit history. It occurs when you apply for a mortgage, open a new credit card, apply for a loan, buy a car, apply for insurance, or apply for a job. Lenders conduct a credit check to determine the likelihood that you’ll pay back a loan. (See “Hard inquiry” and “Soft inquiry” for definitions of the different types of credit checks.)
Credit report: Your credit report includes the details of your credit history, such as amounts owed on each account and any past or current derogatory marks on all accounts. Your credit report lists all of the financial information that is used to calculate your credit score. Your credit report can be obtained for free once a year from each of the three credit bureaus (Equifax, Experian, and TransUnion) from www.annualcreditreport.com.
October 21st, 2010
Good Credit? 3 Strategies to Move Up To Excellent Credit
At this level in the credit score game, it isn’t a game of chance whether or not you’ll earn excellent credit—it’s a matter of time.
You have your basic good credit behavior nailed down—now take these 3 strategies to put you on the fast track to excellent credit.
February 22nd, 2010
Monday Jumpstart to Personal Finance & Credit Report News
After months of banks’ preparation and consumer anticipation, the final reforms of the CARD Act take effect today to change the way credit card issuers interact with cardholders.
Hoping to protect consumers from unfair and deceptive industry practices, the provisions in place today include banning double-cycle billing, stricter regulation of under-21-year-old customers, fixed payment due dates, and a 45-day notice before changing terms such as interest rates. While issuers are forced to comply to these laws, it also has the effect of changing credit card terms towards imposed annual fees, increased interest rates, and tighter credit score requirements as issuers scramble to recoup losses caused by the CARD Act reforms.
Keep up with more personal finance news and credit score help with the following roundup.
January 27th, 2010
Dear Credit Karma – Credit Inquiries
Dear Credit Karma,
My son is co-signer on a loan for his car at my bank, yet he still shows no credit history available; why is this so?
Co-signing for a loan should show up as an entry on your son’s credit report, so double-check whether it has been accurately reported to the credit bureaus by looking at his Credit Report Card and also by requesting a free credit report at Annual Credit Report. A more robust credit history will help in earning a great credit score, so make sure your son is benefiting from having this loan on his record.
Once you are sure the loan is not accounted for in his credit report, contact your bank and alert them that your son’s co-signer status for the loan was not reported to the credit bureaus. Request to have this error rectified immediately. Follow up in two or three weeks by taking a look at your son’s credit report via his Credit Report Card or Annual Credit Report to make sure the loan has been added to his history—if the loan is in good standing, adding it to his credit history should also boost his credit score.
Dear Credit Karma,
If I apply to rent an apartment and did this on 5 different properties before deciding, how much will it lower my credit score assuming the apartment owners will do a credit inquiry per their advertisement of “on approved credit”?
The impact of these credit inquiries on your credit score will depend on how each apartment owner will generate the credit check. If they request a soft inquiry, as is the case with “pre-approved” credit cards, and other self-initiated credit report pulls like with Credit Karma, it will not affect your credit score. If they use a hard inquiry, it will lower your credit score by a few points and remain on your credit report for 2 years. But be leery that if you allow all five owners to do a hard inquiry, these inquiries will certainly add up in damage to your credit score.
Check out the graph of the distribution of credit score to number of credit inquiries from the Credit Karma community for a sense of how many hard inquiries can impact your credit score. In addition to hurting your score, multiple inquiries on your report may also affect your future loan, mortgage, or credit applications because lenders may view you as a high-risk borrower. There is a possible silver lining: if the apartment owners do conduct hard inquiries, some credit scoring models have been adjusted to count multiple hard inquiries within a 14-day period as a single inquiry.
Ask each landlord what type of credit check they will be doing. If they are planning to do a hard credit inquiry, suggest that you pull your own credit report, such as the one from Annual Credit Report, and take it with you to each apartment owner to minimize the number of hard inquiries on your report. If some apartment owners have already done hard inquiries on your report, you won’t be able to remove the negative impact. But take heart; the damage to your score will fade over time. In the future, be aware of what type of credit checks are being done on your credit report and avoid multiple inquiries in a short period of time; otherwise, happy apartment hunting!
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
December 28th, 2009
Dear Credit Karma – Negative Marks On Credit Report
Dear Credit Karma,
How do I get hard credit inquires off my account?
There is no sure method to get hard credit inquiries “off your account” other than waiting out the two year term hard inquiries remain on a credit report. A hard inquiry is a credit report check by a lender as part of a loan or credit application that negatively impacts your credit score. Some online sources report that you can “bump” hard inquiries off your report by doing many soft credit inquiries, which are credit checks that do not affect your credit score, to replace previous hard inquiries on the list of inquiries on your credit report. However, this strategy may not work because the credit bureau issuing your credit report may list the hard and soft inquiries separately. Also, beware of online companies offering to remove your hard inquiries for a price; if it sounds like a scam, it probably is one.
You are better off just waiting for the hard inquiry to fall off after two years on your credit report. Credit inquiries are one of the key components that go into calculating your credit score, and hard inquiries will drop your credit score by a few points for 6-12 months, but the older the inquiry gets, the less damage it will take on your score. Just take care to avoid future excessive hard inquiries within a short period of time, like multiple loan applications or many new credit cards, because the damage will add up. Check out Credit Karma’s Credit Simulator to see how credit inquiries will affect your score.
Dear Credit Karma,
When items “fall off” of your credit report, how long does it take to reflect on your score? How many points will each account falling off raise your score?
Determining how long it will take between an item “falling off” your credit report and its impact on your credit score is difficult to say because your credit score won’t necessarily improve due to one item “falling off”. There is no guarantee it will reflect immediately, if at all, on your credit score. First of all, your credit score is calculated according to a complex algorithm involving all components of your credit report. Your credit score will improve relative to your entire credit report, and not just one item “falling off”. Secondly, the impact of one item “falling off” may only have a slight point improvement on your score. Different credit actions vary in their damage points to credit scores, so an old bankruptcy would be a bigger weight off your credit report than a debt settlement. But the longer an item remains on a credit report, the less damage it has on your credit score over time; thus, it is hard to say just how much your credit score will benefit once an item is wiped off your report. The best thing to do is to monitor your credit report and credit score to keep a tab on any changes that happen.
Dear Credit Karma,
I’ve recently been told by two separate banks that they are closing my credit card accounts due to inactivity. Both of these have had zero balances for quite some time but the accounts themselves are at least 10 years old each. How can I apply for new credit cards without it affecting my score? This doesn’t seem fair to me.
Banks have been trimming their accounts and tightening credit access in the past few months much to the chagrin of cardholders like yourself, and now you find yourself in need of fresh credit. Unfortunately, you can’t avoid a hit to your credit score while applying for a new credit card. Issuers do a hard credit pull whenever you apply for a credit card, which will have a small negative impact on your credit score. While you can’t avoid the impact on your credit score, excessive hard inquiries due to applying to many credit cards over a period of time will hurt your credit score even more and reflects badly to potential lenders. Protect yourself as much as possible by shopping around and applying selectively to just a few, choice credit cards that are right for you. Start off with one credit card and regulate your credit use and build up your credit with monthly purchases you can pay off in full, like a trip to the movies or a grocery run; if you still want a second line of credit, you can always apply for another credit card later. But if you have other credit cards, you might consider using those older cards more actively rather than getting a new credit card, which risks letting your older cards fall to the wayside and potentially be closed for inactivity too.
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
