A recent column on how to close unused credit card accounts drew a lot of questions, which I'm happy to answer.
QAs you suggested, I got a copy of my credit report. Everything seems correct, but I did have one question: How can you tell what your score is?
AThere are two types of credit scores. The first is a FICO score developed by San Rafael, Calif.-based Fair, Isaac & Co. The three major credit bureaus (Experian, Equifax and TransUnion) provide a FICO score to lenders. FICO is the score most widely used by lenders and the one you have to pay to see. Then there are credit scores you can get free that use factors similar to, but not the same as, those used by Fair, Isaac. Free scores are available from many online companies, such as E-Loan. In exchange for a free score, however, you may be bombarded with e-mails offering you various loan or consumer credit products.
Consumers can get their FICO score for $12.95 from three main Web sites: www.myfico.com, www.equifax.com and www.transunioncs.com. Although Experian uses Fair, Isaac's scoring formula, the credit score it sells to consumers for $14.95 is based on its own model.
TransUnion also provides consumers with a credit score based on its own scoring system at no additional cost when you buy a basic credit report.
"If your interest in credit scores is casual, then you should seek out a free score since accuracy isn't very important," suggested Craig Watts, a spokesman for Fair, Isaac. "But if you're thinking of applying for a loan and want to know what kind of reception to expect from lenders, then only the FICO score will do."
Does requesting that your credit limit be lowered help your credit score? My credit card company keeps increasing my credit limit, but I have no need for it. I'm concerned that having too much available credit may affect future purchases.
"No, it won't help your FICO score if you have your credit limit lowered," Watts said. "FICO scores don't penalize you for having a lot of available credit. They are more concerned with how you manage the credit" you already have. The higher the amount you can charge, however, the greater the perceived risk you are to new lenders, warns Audrey O'Dell, newsletter editor for TrueCredit, a division of TrueLink, a California company that sells credit-monitoring and identity-protection services to consumers. Ultimately, Watts added, the best way to raise your FICO score is to pay down your current account balances and always pay your bills on time.
My friend is back in the United States after living for 10 years in the British Virgin Islands. He is trying to get a credit card to get some credit established. He would like to buy a house next year. He has applied to several credit card companies, only to be turned down due to his lack of a credit history. How can he get a credit card under the circumstances?
"Not a problem," said Steve Rhode, president of Myvesta, a nonprofit financial management organization. Get a "secured" Visa or MasterCard. With a secured credit card you put your own money into a savings account, and those funds are used as collateral for your credit line. For example, a credit card company might require you to deposit $1,000 to extend you a $1,000 credit line. If you don't pay your bill, the money in the account may be used to cover the debt. A secured credit card is a way to build up a credit history by using the card and paying off the charges every month and on time. You can find some of the best secured-card deals online at www.bankrate.com/brm/rate/brm-ccsearch.asp.
Why do you suggest getting a copy of your credit report from all three of the major credit bureaus? It seems as if a credit report from one of the major credit bureaus would be sufficient.
Sorry, one report is not enough. Each credit bureau keeps a separate file on you with information supplied to them by your creditors. "Some creditors don't report consumer credit information to all three bureaus, and since the agencies do not share or cross-check their data, it is up to the consumer to make sure that all three reports have accurate information," O'Dell said. One of your reports could have serious inaccuracies that could damage your credit, while it is possible that the other two might not have the errors on their records at all. Although you don't need to pay to get three credit scores (just one will do), you should get a copy of your credit file from all three credit agencies. "It's like a financial X-ray," Rhode said. "Only getting one bureau report is like only getting one lab test done even though your doctor ordered three different tests."
While Michelle Singletary welcomes comments and column ideas, she cannot offer specific personal financial advice. Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or by e-mail at firstname.lastname@example.org.