Latest news with #FICO
CNBC
4 hours ago
- Business
- CNBC
Rumors of the demise of the American consumer are exaggerated, says Affirm CEO Max Levchin
Max Levchin, Affirm CEO, joins 'Closing Bell Overtime' to talk the health of consumer credit, the inclusion of Buy Now Pay Later loans in FICO scores, and more.
Yahoo
9 hours ago
- Business
- Yahoo
7 Dangerous Assumptions You Should Not Make When Using a Credit Card
Using a credit card is something many Americans do on a regular basis. According to the latest data from the Federal Reserve, 82% of U.S. adults have a credit card, and according to FICO, nearly half the U.S. population (46%) opened at least one new account over the past year. Find Out: Read Next: Although credit card use is common, many Americans don't really know all the ins and outs of how they work. Here are some of the dangerous assumptions you should not make when using a credit card. There are many reasons you may no longer use a credit card. Perhaps you opened a store credit card and find you don't really shop there anymore, or maybe you opened a card with better perks and you no longer need your older one for everyday purchases. Your instinct might be to close your unused card out, but this is a mistake. 'Closing a credit card decreases available credit and also erases some history from your credit report,' said Michael Sullivan, a personal finance consultant at Take Charge America, a nonprofit credit counseling agency. 'Both of these harm your credit score. Unless a card has an annual fee, the best solution for an unused card is to cut it up.' Be Aware: You might assume that the due date is the best time to pay a credit card bill, but this isn't necessarily the case. 'It is never good to be late with a payment, but there are many times when it is smart to make a payment before the due date,' Sullivan said. 'Sometimes it can free up needed credit, but it always improves credit scores by lowering credit utilization.' Sullivan said that some consumers go so far as to make a payment after every use to make sure the balance doesn't grow out of control, while also maximizing their credit scores. 'They are really paying cash for each purchase while still getting the benefits of a credit card, such as warranties, the convenience of not carrying cash and credit card rewards,' he said. Not all credit card reward structures are the same, so it's worth to do some shopping around before deciding on the card that's best for you. In general, Sullivan believes you should opt for a cash-back card versus one that offers points. 'Rewards points have only the value that the credit card company assigns,' he said. 'Travel points often become devalued as airlines increase mileage or point requirements. Points also need to accumulate over time to enable major purchases or trips. In the interim, many things can happen.' Cash-back cards, on the other hand, provide more flexibility. 'Cash can be used for any trip or any purchase,' Sullivan said. 'But all cash-back cards are not created equal. Some provide a flat percentage on all purchases, while others offer more for gasoline purchases, groceries or other categories. 'A highly organized consumer can use one card for gasoline and a different card for groceries, or just use one card and plan to balance out returns,' he continued. 'In any case, consumers should get a cash-back card and have the rewards applied or refunded monthly.' When money is short, you might assume that credit card payments are the bills to pay late, since one missed payment does not generate much harassment. 'Credit card companies may not mind a missed payment, but it is because they collect a significant fee,' Sullivan said. 'In addition to the high interest, most companies charge $35 or more for missing a payment. In addition, they notify the credit reporting agencies of the missed payment after 30 days, and that notice will affect the consumer's credit score for 84 months.' It is often less costly to miss a payment with a lender that does not report late payments. 'Many small companies, utilities and public services do not report,' Sullivan said. When an unexpected expense pops up, you might think that using a credit card is your best bet since you don't have to pay it off right away. However, this is likely not the best option. 'While a credit card can be helpful in emergencies, this shouldn't be your go-to protection,' said Andrea Woroch, consumer finance expert and writer for 'You should have an emergency fund with three to six months of living expenses to avoid using a credit card and digging yourself into debt.' Nearly half of all American households (46%) have credit card debt, according to the latest available data from the Federal Reserve Bank of St. Louis. While having credit card debt is 'normal,' this does not mean it's OK. 'Debt is stealing from your future,' said Jay Zigmont, Ph.D., CFP, founder of Childfree Trust. 'Credit cards are some of the highest interest debt out there. If you carry a balance on your credit card, you are effectively paying 20% to 30% more each year for each thing you buy. Try to pay off your credit cards completely each month, and don't carry debt.' Some Americans believe they are using their credit cards responsibly if they are able to make the minimum monthly payment on time every month. However, you should be aiming to pay your bill in full each month. 'If you pay just the monthly minimum payments, it may take you 10 years or more to pay it off,' Zigmont said. 'In some cases you aren't even covering the interest. Credit card companies love when you make minimum payments because it maximizes how much interest they can get from you over years.' More From GOBankingRates Here's the Minimum Salary Required To Be Considered Upper Class in 2025 This article originally appeared on 7 Dangerous Assumptions You Should Not Make When Using a Credit Card Sign in to access your portfolio
Yahoo
a day ago
- Business
- Yahoo
Can closed accounts be removed from your credit report?
Accounts that have been closed for years often remain on your credit report. Closed accounts with a history of on-time payments may continue to boost your credit score slightly. You can try to remove closed accounts from your credit profile by asking a creditor for a 'goodwill removal' or waiting for them to disappear on their own after 10 years. Your credit report is essentially a timeline of your financial decisions. It provides lenders with important information needed to evaluate whether you're likely to repay a loan on time. This includes a summary of the total amount of debt you're carrying, the amount of time you've had credit lines and your history of on-time payments. Many people are surprised to see their report also includes accounts that have been closed for years. If you've made all your payments on time, these accounts aren't hurting anything — they may even improve your credit. Old accounts that show a history of late payments or defaults, however, could also be dragging down your credit score. You may want to take some steps to remove a closed account that is negatively impacting your credit score. This would include accounts that include late payments or other negative remarks. You do not need to remove a closed account from your credit report if it is in good standing. An account that has a history of on-time payments and responsible management can have a positive impact on your overall score — especially since payment history makes up 35 percent of your FICO credit score. Keep in mind: When you eliminate a closed account that was in good standing from your credit profile, you're erasing a positive part of your credit history. It's often best to leave these types of accounts on your credit profile for as long as possible. If a closed account is hurting your credit score, you have a few options for trying to remove this old debt from your credit report. Removal isn't guaranteed unless the account contains a true error, as it ultimately depends on each credit bureau's policies. The options outlined are also not limited to addressing closed accounts. Some of them can also be used to address incorrect information you find on your credit report. Many consumers are surprised to learn how common it is for credit reports to contain inaccurate information. A 2024 Consumer Reports study found that almost half of volunteers who could access their credit reports (44 percent) noted errors in their credit reports. Most errors are simple, like a wrong middle initial or address, and don't negatively affect your credit. Some mistakes, however, can negatively impact your credit. In fact, the same Consumer Reports study found that more than a quarter of the volunteer participants who could access their reports found serious errors involving debts that could damage their credit scores. To dispute errors on your credit report, including inaccuracies about closed accounts, you need to contact the credit bureaus reporting the error and ask them to correct the record. In addition to your contact information, you'll want to include the following in your dispute: The account number for the account in question. A written explanation of the incorrect information and why it's wrong. A copy of your credit report with the incorrect information highlighted. Any documents that prove your dispute is valid, such as receipts of payment. Credit reporting agencies are legally required to investigate your claim within 30 days and notify you of their response. According to the Consumer Financial Protection Bureau (CFPB), you should also contact the creditor who reported the information. If the credit bureau determines the account doesn't belong to you, it will likely be removed from your report. For other types of errors, the account may stay on your report with corrected information. With the correction made, the account may actually improve your credit rather than lower it. If the information on your closed account is accurate but it's lowering your score, you can try requesting its removal by sending the creditor a goodwill letter. Goodwill letters are requests to have information removed from your credit report. They're typically used when a borrower has missed a single payment due to unexpected and unavoidable consequences. You could use the letter to ask for the closed account to be removed completely, or you could ask for the negative marks to be removed from that record. Keep in mind: While you may get the result you're hoping for, there are no guarantees. When seeking a goodwill removal, there's no need to contact the credit bureaus directly. They won't remove accurate information upon request. If your creditor agrees to your goodwill request, they can ask the bureaus to remove the negative information from your report. But keep in mind that the bureaus may not agree. Closed accounts on your report will eventually disappear on their own. Generally, negative information on your reports is removed after seven years, while accounts closed in good standing will disappear from your report after 10 years. If you're curious about which accounts are still on your report or want to monitor the information on your reports over time, it's easy to get a copy of your credit reports. Federal law allows you to request a free weekly credit report by visiting If you're feeling overwhelmed by the idea of filing disputes with the credit bureaus or writing goodwill letters to creditors, you can consider hiring a credit repair company to handle it. These companies may also offer additional services, such as credit score monitoring, identity theft insurance and sending cease-and-desist letters to debt collectors. Credit repair companies won't dispute accurate information, and they can't do anything to improve your credit that you can't do yourself. If you don't have time for DIY credit repair — and have room in your budget to hire someone — hiring a company may help. You may also find some benefit in working with experts who may have established relationships with creditors or credit bureaus and more experience disputing errors. Unfortunately, with so many Americans struggling with credit score issues, credit repair scammers have emerged to take advantage of people who need help. If you decide to hire assistance, choose your credit repair company carefully. Knowing which factors influence your credit score can help you decide which closed accounts might be worth removing. Your FICO credit score, which is the most common model used by creditors, is based on the following five factors: Your payment history, 35 percent. Your credit utilization ratio, 30 percent. The average length of your credit history, 15 percent. New credit, 10 percent. Your credit mix, 10 percent. The three credit bureaus — Equifax, TransUnion and Experian — compile your credit information. Credit-scoring companies then use it to calculate your credit score. As a result, a closed account that shows a history of on-time payments may continue to boost your credit score slightly for up to 10 years after the account was closed. On the other hand, closed accounts that show late payments, missed payments or balances going to debt collections can negatively impact your credit score for up to seven years. There's no need to remove closed accounts in good standing from your credit report. They can positively influence the average length of your credit history and your on-time payment rate, helping to boost your credit score until they naturally fall off your report. If you believe an old account is pulling down your credit score, however, you can take some steps to try to remove it. Still, it's important to keep in mind that removing old, negative accounts may give your credit score a quick little boost, but it typically takes years to build good credit. Responsibly managing your debt and making payments on time can positively impact your credit well into the future. Should I close an account once the balance is paid? Closing an account could harm your credit score in two ways. First, it reduces the average length of your credit history. Secondly, it can change your credit utilization ratio. For example, if you close a credit card with a $10,000 limit, your available credit is reduced by $10,000, and any debt you carry is now a larger percentage of your available credit. However, you may want to close inactive accounts that charge annual fees, or ask if you can downgrade to one without. How long do closed accounts stay on my credit report? Unless you remove them early through a dispute or successful goodwill request, closed accounts can stay on your reports for seven to 10 years. Is there a way to quickly improve my credit score? Removing negative marks from your credit report through a dispute or goodwill request may boost your credit score quickly. Good credit habits are the best way to keep your score up over time. Make your payments on time and keep your debt below 30 percent of your available credit limit to improve and maintain your credit score. Recent accounts and payments are weighed more heavily than old ones, so new, positive information may help offset past missteps. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNET
2 days ago
- Business
- CNET
'Buy Now, Pay Later' Plans Will Start to Impact Your Credit Score Later This Year. Here's How
CNET/Getty Images You can use "Buy Now, Pay Later" for just about everything now, from Costco purchases to DoorDash (although that doesn't mean you should). About 86.5 million people used BNPL in 2024, according to Capital One's research. But the one thing BNPL couldn't do was improve your credit. Although some of Affirm's plans do report to Experian and TransUnion, most BNPL services don't report on-time payments to credit bureaus. However, that could change later this year. FICO, one of the two major credit scoring models, this week unveiled its FICO Score 10 BNPL and FICO Score 10 T BNPL scoring models, which will now take BNPL plans into consideration when creating credit scores. The new scoring models are slated for release in the fall. There are a few reasons why it's taken some time for BNPL to hit your credit reports. For one, BNPL plans are technically loans, but work similarly to revolving accounts, which makes them difficult to quantify. They're also easier to qualify for, stack and pay off, so they pose issues with existing scoring models when determining account age and credit use. Here's how the new models are tackling these short-term loans and how it could boost or hurt your credit score. How FICO will score BNPL plans When BNPL plans hit your credit report, you'll receive two scores: one based on the existing FICO model and one taking the new BNPL calculations into account. This provides more information for lenders to consider when evaluating borrowers, without really impacting the older models. However, whether these new scoring models help people or hinder them remains to be seen. According to John Ulzheimer, a credit expert formerly of FICO, Equifax and and founder of FICO's existing scores would have counted each new BNPL as a fresh account. Because BNPL plans typically only span a couple of months, this could drag down your average account age, a factor that accounts for 15% of your credit score. "So, you could harm your score by having too many newly opened accounts, which lowers your average age of accounts," he said. But with these new credit scores, Ulzheimer said FICO has found a way not to consider each new BNPL as its own loan, which should minimize harm. Even if you stack multiple BNPL accounts, as long as you make your required payments, you shouldn't see a drop in credit score. "Installment debt is almost benign to scores, as long as it's being paid on time. So I wouldn't worry about loan amounts, especially for BNPL, which tend to be very low," Ulzheimer added. How long until we see an impact? These new scores will be released in the fall but it will likely be even longer before we see wide adoption. "It takes years for new scoring models to gain traction so I would not expect to see mass adoption by lenders out of the gate," Ulzheimer said. "That would be historically atypical. And, of course, only lenders that care about how BNPL loans are handled in FICO scores would be interested in these new models." Does this change how you should use BNPL plans? Not really, unless you're stacking too much debt and not able to make your payments on time. Like most loans and other credit products, the most important thing is to be able to responsibly manage your debt -- that means not spending money you aren't able to pay back in time. As long as you're doing that, the new scoring models shouldn't negatively impact your finances.
Yahoo
2 days ago
- Business
- Yahoo
Does applying for a personal loan hurt your credit score?
You may see a slight dip in your score due to the hard credit inquiry required by the lender to finalize your personal loan application. Though this drop is temporary, it isn't the only way a personal loan can hurt your credit score. Missed or late payments can also cause damage. A personal loan can significantly increase your credit score if you use the funds to pay off maxed-out credit cards, reducing your credit utilization ratio. When you apply for a personal loan, lenders must perform a hard credit check to view your credit file. This will cause a temporary drop in your score of a few points. That's why it's important to start the shopping process by choosing lenders that allow prequalification, which doesn't affect your scores. Like any type of loan, personal loans can do damage if you don't make your payments on time. On the other hand, using personal loans for debt consolidation can give your score a major boost, especially if you use them to pay off revolving credit accounts (like credit cards). Personal loans could potentially lower your credit score in several ways. Making regular, on-time payments will help you avoid major damage. Since hard inquiries related to new credit only make up about 10 percent of your credit score, the drop usually doesn't amount to more than a few points. However, it is very important not to authorize multiple credit checks within a 12-month period. Otherwise, the negative effect on your credit could be more substantial. If you need to apply with several lenders at once to compare rates, keep your applications within a two-week period, so the inquiries count as one. Bankrate tip: Don't authorize a hard inquiry for your personal loan application until you've shopped at several lenders and chosen the one that meets your needs. Most lenders will prequalify you without a ding to your credit. You can get several prequalified offers from multiple lenders by applying on a marketplace lending platform like Bankrate. Since length of credit history accounts for 15 percent of your FICO score, opening a new loan account can lower the average age of your credit. This could result in a small dip in your score that will correct itself the longer you have the new account. However, the negative effect could be more pronounced if you use your new personal loan to pay off — and close out — several older accounts. Like most other types of debt, a late payment of 30 days or more could result in a negative report to one or more credit bureaus. The late payment can take approximately seven years to fall off your credit report and will ding your score. If enough time has passed and the account goes to collections, your credit score could drop between 90 and 110 points. When used responsibly, a personal loan can positively impact your credit score in a few ways, like improving your credit mix and boosting your payment history. Your credit utilization ratio accounts for 30 percent of your FICO score and measures how much available credit you've used on revolving cards like credit cards. A personal loan is an installment loan with a fixed monthly payment paid on a set schedule. Taking out a personal Using a personal loan to consolidate debt, especially credit card debt, may lower your credit utilization ratio, giving your credit score a nice boost. However, there's a catch: you have to avoid or minimize your credit card use in the future. The positive effect of clearing out your credit card balances will be undone if you start maxing out credit cards in the future. Although credit mix only accounts for 10 percent of your FICO score, adding a personal loan could help your credit mix if you don't have any other installment loans. It is generally a good idea to have a mix of installment loans and revolving credit. Making payments on time has the biggest impact on your credit score, so adding a personal loan you pay on time could help you establish a positive payment history. Another benefit of consolidating multiple credit cards with a debt consolidation loan, is you lower the risk you might miss a payment because you're juggling so many different due dates. We touched on this above, but it's worth repeating: using a personal loan to pay off credit card debt could be a fast path to a much higher credit score. Bankrate's recent credit utilization survey found that nearly 2 in 5 cardholders have maxed out a credit card since the Fed started hiking rates. A maxed-out card can have devastating, immediate effects on your credit scores. However, once they're paid off, your scores can increase just as quickly, as long as you avoid future excessive credit card use, make your payments on time and avoid opening multiple accounts in a short period of time. Personal loans can be a great tool to help you improve your credit score over time — once you get past the temporary inquiry blip when the lender finalizes your approval. The benefits of using a personal loan to pay off revolving debt usually far outweigh the hard inquiry drop. However, the payment is fixed, which means you won't have the flexibility of a minimum payment like you do with credit cards. Use a personal loan calculator to preview your payment amount so you avoid committing to an unaffordable fixed payment you'll typically have for one to seven years. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
