How Much Does Opting Out Hurt Your FICO Score?

Congress overhauled the credit card industry with the 2009 Credit CARD Act, which allows people to opt out of term changes 45 days in advance of them taking effect. Opting out of changes to your credit card agreement could hurt your FICO score, but the severity of the damage relies on other information on your credit report.

Prescreened Offers

If "opting out" refers to removing yourself from the list of creditors who tender credit offers without an application, it will have a neutral impact on your credit score. Prescreened offers run a "soft pull" on a person's credit history, which means the inquiry was not initiated by the borrower, and thus, not an application for credit.

Opting Out of Term Changes

The act of opting out of changes to a card's terms and conditions will not hurt your score unless failing to agree to the new contracts requires closing the account. If you have to close your credit card account, it will hurt your credit utilization ratio and possibly your mix of accounts. Lowering your overall credit limit could make it appear you need a higher percent of your credit than you really do. Also, if you only have one card, closing it will reduce the variety of your accounts---10 percent of your credit score.

Is It Worth Opting Out?

If you can withstand the temporary hit to your credit score and do not plan on needing credit for the foreseeable future, you can probably opt out safely to avoid higher interest charges. On the other hand, if you are shopping for a mortgage or other large loan, you want the highest score possible to get the lowest rate, so accepting the changes could be in your best interest. Just a half-point on a $300,000 mortgage, for example, would outweigh any increase on, say, a $2,000 balance on a credit card.

Tip

You could transfer the remaining balance on a card instead of opting out. Credit card companies often allow new accounts to transfer balances from other cards at zero percent for six to 18 months. Also, if you cannot pay off the balance immediately, you will continue making payments under the old terms on the card, which could include discretionary rate increases.

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Credit Cards to Help Get Your Credit Up

Even people coming out of bankruptcy should start using credit cards to help rebuild their credit history, suggests experts such as Justin Harelik of Bankrate.com. Credit cards only help build credit when the borrower uses them responsibly or else they could do far more harm than good. As long as the borrower thinks he can handle new credit he can almost always find a card.

National Versus Small Banks

All credit cards are basically the same from a credit scoring viewpoint. However, it is better to have an account with a national bank, because such banks almost always report to the three national credit bureaus and tend to charge lower fees and finance charges, according to the BCS Alliance. Also, future lenders respect lines with big-name banks rather than community financial institutions or debt repair companies. Consumers with bad credit scores can expect to have only retail store or gas cards and secured accounts -- backed by collateral -- available to them.

Use Strategy

Opening a new account always lowers a credit score a few points. With credit cards the percent of the credit limit a consumer uses plays a big part in the FICO scoring model used by most lenders. Thus borrowers should be careful about accruing a balance on their new card, especially the first month, because most borrowers put the annual fees on the account during the initial billing cycle. On a retail or gas card, which tend to have small limits, the fee can cause a high credit utilization ratio immediately.

Considerations

Once a consumer acquires over seven credit cards the FICO system dings the score a little bit, according to The Motley Fool. Also, it will probably take about six to 12 months of positive payment history before the new card adds a significant amount of points to the borrower's credit score.

Tip

Secured cards work best when the borrower cannot qualify for an unsecured card. Once the consumer builds a sufficient amount of payment history the creditor will likely turn the account into an unsecured line or offer a unsecured card. Before a consumer goes for any card, he should ask the creditor to which bureaus it reports. Unless the lender reports to Equifax, Experian and TransUnion, the borrower is not maximizing the amount of history the account builds.

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What Is a Good Credit Score?

A person's credit score is used for many things these days. Employers often use a person's credit score to determine if he is trustworthy for a job. Landlords use a credit score to determine if a person is going to pay his rent. Mortgage companies and other lenders use it to decide if a person is a good credit risk. But how many people actually know what a good credit score is? Depending on the purposes and other factors, the answer to that could vary.

Identification

The higher a person's credit score, the better it is and the more opportunities she will have for getting credit. The highest credit score a person can have is 850, according to the FICO score scale. Few people have a score of 850, which is excellent.

However, the range of a "good" credit score is between 660 and 749, but this figure is different depending on what type of company you are dealing with. For instance, a car finance company may be more lenient than a credit card company because there is a form of collateral in the value of the car if you decide to stop making your payments. Every company is different, though, and some of them will look at your particular situation in addition to your credit score before making a final decision.

Benefits

People that have a credit score that is in the "good" range typically do not have many problems when it comes to borrowing money or obtaining financing for a mortgage, car or other loan. In addition to getting loans and financing with less trouble, a good credit score results in a lower interest rate. Depending on what type of loan the person receives, the interest rate could mean a difference of thousands of dollars over the life of the loan. An excellent or good credit score also opens up more opportunities for a person as she can often apply for and obtain personal loans for emergencies, home improvements and other reasons.

Types

Credit scores are typically calculated by three major credit bureaus: TransUnion, Equifax and Experian. Many people will have different credit scores through each of these bureaus because different creditors report to different bureaus. For instance, those pesky school loans you have may only report your payments (or lack thereof) to the Equifax bureau. As a result, Equifax will have a different overall credit score for you than the other two bureaus. Some creditors report to all three bureaus. When a creditor determines if you have a good credit score, it will check all three bureaus to make a decision. If all three credit scores are good, there should be no problem obtaining financing.

Warning

A good credit score is ideal. However, there are many warnings to heed even if you do have a good credit score. People with a good credit score can easily fall deep into debt if they are not careful about the money they borrow and their payments. A couple of late payments on a new car that you obtained financing for could result in a lowered credit score. Getting too many credit cards or charging too much on your current credit cards could lower your good credit score in a matter of months. Don't let your good credit score become more of a detriment than an advantage by getting too much credit.

Considerations

When trying to determine if you have a good credit score, the credit bureaus look at several factors regarding your past and current financial situation. One of the main aspects they consider is the financial responsibility you've exhibited. They check to see how often you've paid your bills on time and how often you pay them late. Late payments will negatively affect your good credit score. They also look at how much debt you have in relation to your income, or your debt-to-income ratio. A high amount of debt with a low amount of income will negatively affect your good credit score, too. The length of time you've had credit and the number of times you've applied for credit recently can also affect your good credit score one way or the other, depending on the answers to those questions.

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How to Delete Collection Companies from Your Credit Report

Discharging entries from collection agencies on a credit report can be irritating. Some collection agencies may be slow in reporting to a credit agency on the status of their loans. Particularly unscrupulous companies may attempt to avoid upholding their agreements, sometimes demanding further payment to expunge an entry on a credit report. Keep accurate records of all dealings with collection agencies and educate yourself on your rights to protect yourself against such fraudulent behavior.

Instructions

Getting Collection Requests off of Your Credit Report

1

Contact the collection agency in writing to inquire about the debt they are attempting to get you to pay. Request that any agreement they make with you be provided in writing. Verbal agreements are not possible to prove. Make copies of all correspondence with the collection agency.

2

Determine whether the collection agency in question has acted legally to collect on your debt. (Read the Fair Debt Collection Practices Act Brochure listed in the Resources section below.) If you have written proof that they have violated federal or state debt collection laws, you may not be obligated to pay them, and they may have to expunge their collection request from your credit report.

3

Follow the terms of any agreement that you reach with the collection agency. Make any payments that are necessary. Request directly that the collection be removed from your credit report as part of the terms of your agreement.

4

Wait for your credit report to be altered. If the entry is not corrected as per the terms of your agreement with the collection agency, file a dispute with the original company to which you owe a debt, along with copies of all relevant documentation such as cleared checks, bank records, correspondence, and receipts.

5

Consider waiting seven years for the collection request to be expunged from your credit report. This is the most damaging path to take for your credit score, but credit reporting companies are required to remove even unpaid collection requests from your report seven years after the initial claim.

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The Fastest & Easiest Way to Build Up Credit

Rebuilding credit after a bankruptcy or credit consolidation process is not easy. You cannot do it instantly. It takes time, effort and discipline. But it is important to re-establish a solid, good credit history as fast as possible. The time this process takes really depends on you and the financial setback you have experienced.

Retain a Credit Card

Under certain situations, you can keep a credit card when faced with bankruptcy, consolidation or foreclosures, so long as you make the payments on time for that credit card. Once the financial situation has been resolved, on-time payments for this credit card will help build good credit.

New Credit Account

If all your credit accounts were closed, you need to open a new account to re-establish credit. In most cases you won't be able to open a regular unsecured credit account, so you will need to get a secured credit card. This type of card requires a cash deposit in the amount of credit limit being offered. This deposit offers the lender security as to the payment of the credit card balance, but after a certain time has passed, this deposit is returned to you. Once you have a credit card, make small credit charges and pay them off every month. This will start rebuilding your credit score quickly.

Timely Payments

Make all of your payments on time. This includes payments for utilities, rent, mortgage and credit cards. On-time payments increase your credit score, whereas late or missed payments will lower your score even more.

Credit Score

Pull your credit history every three months to six months to make sure payments are being reported and that all the information being reported is pertinent to your accounts. If anything is incorrect, report it immediately to get it removed from your credit history. Pull a report from all three credit reporting agencies, Experian, TransUnion, and Equifax, as not all credit reporting agencies have the same information.

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Ways to Improve Credit Score Quickly

Although the most tangible way to improve credit scores is to pay bills on time over a period of years, consumers can take several key steps to improve their credit scores quickly. It can be particularly useful to complete these steps over several months before applying for a car loan or mortgage.

Fix Incorrectly Reported Information

One of the quickest and easiest ways for consumers to improve their credit scores is to obtain a copy of their individual credit reports and correct any inaccurate information. An old medical or utility bill previously settled may still be reported as late or unpaid, a credit card may show an incorrect balance due, a previous mortgage payment may have been credited late because of a bank error, or a tax bill may have been disputed or incorrect. In all such cases, consumers should write to the creditor, who is obligated to either verify or remove the negative item at hand.

Bring All Accounts Current

If consumers habitually pay a credit card a few days late, this will have no bearing on their credit score, as negative information is reported only after a delinquency of 30 or more days. However, if they are typically a month or two behind, a proactive way to address this is to apply for a debt-consolidation loan or mortgage refinance, obtain a second job or borrow money from friends or family to become current on all bills. Within just a few months of bringing those accounts up to date, your credit scores will improve notably.

Pay Down as Much Debt as Possible

One of the primary factors in a high credit score is a low usage-to-available-credit ratio. If credit utilization is at or near the available credit on even one or two accounts, this presents a red flag to potential creditors as it suggests some sort of financial trouble. Paying those cards down by whatever means available will immediately improve your credit score.

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How Does Closing a Savings Account Affect a Credit Score?

Credit scores measure consumers' "creditworthiness," or their likelihood to repay debt. Many things impact credit scores, such as credit cards, recent loans and home purchases. However, closing a savings account has no effect on a person's credit rating.

Significance

Savings accounts are not tied to a loan or a line of credit, so they do not show up on credit reports, according to My Bank Tracker. Credit bureaus use only the information on a person's credit report to calculate her credit score.

Misconceptions

According to My Bank Tracker, a common misconception is that individuals can use debit cards, which are sometimes tied to savings accounts, as a line of credit. However, though these cards often bear credit card logos, they are not lines of credit.

Potential

Although closing a savings account does not impact your credit score, keeping your savings account open allows you to earn a small amount of interest on your saved money. Having a large amount of funds saved helps protect you from financial emergencies, allowing you to avoid missing payments and ruining your credit score.

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