Ask Kim: Don't Sweat Small Changes In Your Credit Score

Q: Recently my credit score dropped from "exceptional" to "very good." I put a security freeze on all of my credit reports, and I closed out an auto loan around the same time. Did either of those actions cause my score to drop, A: Neither of those actions is likely to have had an effect on your scores, says credit expert John Ulzheimer, formerly of credit-scoring company FICO and credit bureau Equifax.

A credit freeze doesn't hurt your credit scores, says Ulzheimer. A freeze can help protect you from identity theft, but it can also make some things more complicated, such as applying for insurance or opening a bank account. Also, paying off an auto loan doesn't cause scores to drop, Ulzheimer says. But, he points out, it isn't likely to help your scores, either, because installment debt has only a small impact on scores.

Ulzheimer says that small score changes often stem from fluctuations in credit card balances, which cause your debt-to-credit ratios to rise and fall. Nearly 30 percent of your FICO score (the credit score most lenders use) is based on amounts you owe. Keep an eye on your credit utilization ratio, which is the percentage of available revolving-account credit you're using. 2,000, for example, your utilization ratio is 10 percent. Kimberly Lankford is a contributing editor to Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.

2. Tell the creditor or other information provider in writing that you dispute an item. Many providers specify an address for disputes. If the provider reports the item to a credit reporting company, it must include a notice of your dispute. And if you are correct — that is, if the information is found to be inaccurate — the information provider may not report it again.

Q: What can I do if the credit reporting company or information provider won’t correct the information I dispute, A: If an investigation doesn’t resolve your dispute with the credit reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the credit reporting company to provide your state­ment to anyone who received a copy of your report in the recent past.

You can expect to pay a fee for this service. If you tell the information provider that you dispute an item, a notice of your dispute must be included any time the information provider reports the item to a credit reporting company. Q: How long can a credit reporting company report negative information, A: A credit reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years.

150,000 worth of credit or life insurance. Information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, which­ever is longer. Q: Can anyone else get a copy of my credit report, A: The FCRA specifies who can access your credit report.

Creditors, insurers, employers, and other businesses that use the information in your report to evaluate your applications for credit, insurance, em­ployment, or renting a home are among those that have a legal right to access your report. Q: Can my employer get my credit report, A: Your employer can get a copy of your credit report only if you agree. A credit reporting company may not provide information about you to your employer, or to a prospective employer, without your written consent. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them.

In most instances, it is advisable to keep the accounts you’ve held the longest open. Your rating will improve if you rely on them very little, no more than twice a year. Closed accounts will appear on your report and could lead to a higher score, but this will subside in time.

It’s better to just let them remain open. The diversification of the accounts you have influences some lenders more than others. But when you don’t have much of a financial or credit history, it may be more important. The more different types of accounts you can keep current, the better. But, it is important that you open accounts that only make sense, that you need and will use. Your final credit score will consider your mortgages, installment loans, credit/debit cards, and any accounts you have at retail stores.

Lenders look closely at new credit, especially when someone does not have much of a credit history. Studies show that when someone opens numerous accounts in a short time period, they pose a greater risk to lenders. Just having a number of inquiries into your credit history over a short span of time can also affect your credit rating.

If you space your inquiries within a 2-3 week time span they will likely be considered a single inquiry, which means you wouldn’t be negatively impacted for looking around. On the other hand, you do not want to appear to be constantly shopping for new lines of credit. Today’s lenders are looking for borrowers who make thoughtful decisions and manage their credit in a responsible manner.



This example is for illustration purposes only and may not include all information typically provided in a credit report or score. FCAC has modified the presentation for online display. This example may not appear in exactly the same way as the credit report or score you receive from a credit reporting agency.