5 FAQs about credit reports and building a good credit score.
Money Girl
250 MG Credit Scores and Your Frequently Asked Questions
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So I decided to do a roundup of the most frequently asked credit questions. I'll cover five questions in this podcast and 20 more in a video over at smartmoves2growrich.com. Question number one will paying off a balance in collections increase my credit score. Collection agencies specialize in pursuing delinquent debts either as agents for creditors or by purchasing debt and then attempting to collect it. Never ignore a debt so long that it gets turned over to a collections agency because that will definitely cause your credit score to plummet. Kay asks, "I checked my credit score and saw that it dropped over 120 points due to a small balance that just went to collections. If I pay off the debt quickly, can I have it removed so my credit score will increase?" Unfortunately, all past due accounts remain on your credit report for seven years from the original delinquency date. However, you may be able to negotiate with a collections agency to remove an item from your credit report if you pay off your balance in full. The agency isn't under any obligation to comply with your request, but it never hurts to ask. Question number two, "How can a young person build credit?" Building credit is a catch-22. You can't get approved for it until you have a decent credit score, but you can't build a good credit score without having a positive credit history. Chassity asks, "I'm an 18-year-old college freshman and was declined for several retail store cards. What else can I do to build good credit?" The answer to this common dilemma is to use a secured credit card. A secured card requires you to make a refundable deposit that becomes your credit limit. You have to make monthly payments just like with a regular unsecured card, but if you default, the card company can tap your deposit. Here's a quick and dirty tip. Only use a secured credit card that reports payment history to the national credit reporting agencies. That will help you build a credit history as quickly as possible so you can get approved for a regular credit card or an installment loan. Question number three, "Can a new U.S. resident build credit?" In the United States, credit scores are tracked by your Social Security number. That means any resident who qualifies for a Social Security number can build a credit file here. Lauren asks, "I moved to the U.S. from Australia and have been working full-time for seven months. I finally got approved for a credit card with a small credit limit, but I still have a low credit score. How can I raise my credit score so I can buy a home soon?" Building credit with a secured or unsecured credit card doesn't happen overnight. The length of time that you've had credit plays a big role in how credit scores are calculated. So if you're just starting out, simply focus on what you can control. Monitor your credit report to watch for any errors. Pay all your bills and credit accounts on time. Keep your balances on credit cards below 30% of your available credit limit. And don't apply for a bunch of new credit accounts too quickly. Question number four, "Should I close my unused credit cards?" Many people mistakenly believe that canceling credit cards will increase their credit score. In fact, you need to be strategic when it comes to closing credit accounts because it can work against you. Jay asks, "I have six credit cards and always pay them off each month. I want to close two of them and get a new card with a better cashback program. Will doing that hurt my credit?" I recommend closing credit cards that you don't use or that could get you into financial trouble, except in three situations. Never close a card that, number one, has a high credit limit. Number two, you've had for a long time. Or three, would leave you without at least one credit card. For much more information on this question, be sure to listen to a previous podcast. Number 147, "Does canceling a credit card hurt your credit?" Question number five, "How does cosigning a loan build credit?" If you have no credit or poor credit, you can ride the coattails of someone with good credit if they're willing to cosign an application with you. Luke asks, "I have good credit and cosign a car loan with my teenage daughter so she could get a low interest rate. Since I'm going to make the payments on her behalf after she forwards her money to me, will the loan still help her build credit?" When you cosign for credit, both parties share legal responsibility for the debt. Additionally, the account's payment history gets reported on both credit files, no matter who actually pays up. So if Luke makes payments on time each month, both he and his daughter will benefit. But the reverse is also true because cosigning can devastate your finances and your credit if you cosign with someone who can't or won't meet their monthly debt obligation. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is a right for your family. Ixcel is an online learning program for kids covering math, language arts, science and social studies. Ixcel has interactive practice problems for topics from pre-K to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems and learning games, too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. 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Give it a try at mintmobile.com/switch. $45 up from payment equivalent to $15 per month, new customers on first three month plan only, taxes and fees extra, speeds lower above 40 gigabytes of details. To get the answers to 20 more frequently asked questions about credit reports and building a good credit score, visit smartmoves2growrich.com and click the button that says videos. While you're there, make sure to download the credit score survival kit. It's a free multimedia resource that includes a video tutorial where I show you step by step how to check your credit report. You typically have to pay to get your credit score, but the tutorial also shows you how to get it for free as often as you want with no strings attached. If you forget any of this information, no worries, just visit the Money Girl section at quickanddirtytips.com for the transcript to this show, which is episode number 250. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl, your guide to a richer line. If the new Chicken Big Mac at McDonald's looks like a Big Mac, has sweet buns and sauce like a Big Mac, but has two chicken patties, then it's not not a Big Mac. Is it time to re-imagine your future? The right business skills may make a difference in your career. At Capelli University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals, like business management, strategic planning, and effective communication, and you can apply these skills right away. A different future is closer than you think, with Capelli University. Learn more at Capella.edu. You