Will Increasing a Credit Limit Help Your Credit Scores?

When it comes to improving your credit, there are a lot of different strategies which can help you to reach your goals. Of course, paying your bills on time, every time is the first place you should start. You can also work with a credit repair professional to help try to clean up inaccurate and unverifiable information off your credit reports. You may be able to pay down credit card debt to bring about a positive credit score increase as well. However, there are also some lesser known credit improvement strategies which might surprise you.  

How Will a Credit Limit Increase Impact Your Credit Scores?

If you are approved for a credit limit increase, the higher limit will often have a positive impact upon your credit scores. However, this is not always the case. Determining whether or not a credit limit increase is likely to increase your credit scores is going to depend upon a variety of factors. Let's walk through them together.  

1. Will a credit limit increase lower your revolving utilization ratio?

Credit scoring models like FICO and VantageScore are built so that they pay a lot of attention to the relationship between your reported credit card balances and your account limits. This relationship is known as your revolving utilization ratio. Here is a quick example to show how revolving utilization is calculated:

• Original Credit Limit: $5,000

• Account Balance on Credit Report: $1,000

• Revolving Utilization Ratio: $1,000 (Balance) ÷ $5,000 (Limit) = 0.20 X 100 = 20%

The lower your revolving utilization falls, the better the impact is for your credit scores. Naturally, paying off your credit card balances is probably the best way to achieve a lower revolving utilization ratio. However, if you cannot afford to pay down your credit card debt sufficiently, a credit limit increase might lower your revolving utilization as well. Here's how it works:

• Increased Credit Limit: $10,000

• Account Balance on Credit Report: $1,000

• Revolving Utilization Ratio: $1,000 (Balance) ÷ $10,000 (Limit) = 0.10 X 100 = 10%

As you can see in the example above, the revolving utilization ratio was cut in half simply by increasing the credit limit on the account. This would be very likely to have a positive credit score impact.

2. Can a credit limit increase hurt your credit scores?

Generally a credit limit increase will not harm your credit scores. However, if your credit card issuer wants to check your credit report in order to review your request for a limit increase (a common requirement) then a hard inquiry would be added to your credit file. If your request for a limit increase is denied (typically due to credit problems), then you will have undergone a hard inquiry with no upside.

Hard inquiries have the potential to damage your credit scores. Of course, you should keep in mind that not every hard inquiry automatically has a damaging effect upon your credit scores and, even when they do, the impact is typically minor. If your request for a credit limit increase is approved and the result is a lower aggregate revolving utilization ratio, the overall result for your credit scores will still probably be positive in spite of the new inquiry.

Managing Your New Credit Limit Increase

It is important to remember that while a well-managed credit card account can potentially be great for your credit scores, credit card debt is another story. Credit card debt can be both expensive and can damage your credit scores, even if you make all of your monthly payments on time. If you request a credit limit increase as a strategy to help boost your credit scores, you will have to be extra vigilant and commit to not charge up additional debt. Otherwise, or you could find yourself in a difficult situation to manage in the not-so-distant future.  

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Michelle Black is an author and a credit expert with nearly 2 decades of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars on various credit and financial topics. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft.

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Equifax Data Breach: How to Find Out If You're Affected and What to Do About It If You Are

Last week credit reporting giant Equifax announced some very unsettling news. Equifax fell down on the job. There is no other way to put it.

The credit reporting agency experienced a massive data breach which unfortunately compromised the personal identifying information of approximately 143 million people. For a company which makes billions of dollars collecting, storing, and selling your private information this breakdown in security is not just negligent, it is inexcusable. 

If you understandably missed this disturbing announcement last week amidst all of the news coverage about Hurricanes Harvey and Irma, here is what you need to know right now.

Why This Breach Is a Big Deal

Data breaches have occurred with increasing regularity over the past several years. Insurance providers, hospitals, retail chains, online gaming services, and many other businesses have experienced cyber theft which compromised the personal information of millions. In fact, it almost feels as if you cannot turn on the news or log into your favorite social media newsfeed without hearing about a new breach of security.

The regularity of these data breaches can unfortunately be desensitizing. It can cause you to drop your guard. That, however, could be a dangerous mistake especially if your information has indeed been compromised in the Equifax breach.  

Equifax's breach does not simply involve credit card information which can be easily changed to prevent fraud. Instead, the breach involves exposed information you are not going to be able to change: names, social security numbers, dates of birth, etc. The hacked information could be sat on for years, allowing you to forget about the danger, before any actual fraud or identity theft is even attempted. The stolen information will be just as valuable to thieves in the next week, the next month, the next year, and even potentially the next decade to come. If you were among the 143 million consumers compromised, your exposure to identity theft is now a long term risk.

Action May Be Needed. Panic Is Unnecessary.  

Now that you have digested the bad news, let's talk about what you can do to protect yourself. Panic is not going to solve anything, but a solid plan can go a long way.

1. Find Out If You Are a Victim

Equifax maintains credit files on over 200 million consumers. That means that approximately 29% of you were fortunate enough not to have your personal information compromised. You can find out if you were exposed to the data breach here:

https://www.equifaxsecurity2017.com/.

(NOTE: Equifax initially came under fire on social media and from several lawmakers, including New York Attorney General Eric Schneiderman (D), for including fine print in the terms of service on the above webpage which reportedly may have attempted to dupe consumers into waiving their rights to enter a class action lawsuit or to sue Equifax over the breach. Equifax has since changed their terms of service to remove the offending clause. Really, Equifax?!)

2. One-Call Fraud Alerts

If you visit the website above and discover that your "personal information may have been impacted by this incident" then placing a fraud alert on your credit reports may be a good next step. You can easily place a 90 day fraud alert on all 3 of your credit reports by requesting an alert with Equifax, TransUnion, or Experian. Per the Fair Credit Reporting Act (FCRA), once any of the credit bureaus receives a request for a fraud alert they must communicate that request to the other 2 remaining bureaus on your behalf.

The FCRA also gives you the right to place an extended, 7 year fraud alert on your reports as well. However, you will first need to prove that you have actually been a victim of identity theft (aka someone has opened or tried to open a fraudulent account in your name). Both types of alerts are free under the FCRA.

3. Credit Monitoring

Equifax is offering free credit monitoring (TrustedID) for 1 year to anyone who wants to take advantage of the offer. It is not a bad idea to take advantage of this offer, but it is probably not going to be enough. You need to keep in mind that this is a 3-bureau credit monitoring service but you will only have access to your Equifax credit report. Additionally, the service is only free for 1 year and you will need to monitor your reports for much longer than that (forever essentially) if you were a victim.

If you want to truly keep an eye for fraud on your credit reports then a 3-bureau monitoring service with access to all 3 of your credit reports is probably best. However, you will probably have to pay a fee for such a service. There are a lot of good services out there which offer 3-bureau and 3-score monitoring with 3-report access. Some are more expensive than others. If you are looking for some comparisons of available services, visit http://www.greatcredit101.com/credit-reports-and-monitoring/.

It has always been important to routinely check, monitor, and review your credit reports for fraud and errors. If your information has been exposed in the Equifax data breach, that importance has simply become magnified for you more than ever before.

4. Credit Freeze

Fraud alerts can potentially help to prevent identity theft and credit monitoring can help you to quickly discover fraud when it occurs. However, if you want a tool which can help to prevent fraudulent accounts from being opened in the first place then a credit freeze is the biggest gun you can use to defend yourself.

When you place a credit freeze your credit report is taken out of circulation. This means that no future lender will be able to access your reports. If a scammer tries to use your information to open a fraudulent account then the freeze will stop a lender from pulling your credit and, viola, any future loan applications will most likely be denied as a result. Almost no lender is going to approve a new application if they cannot pull your credit.

It is worth pointing out that it is not free to place a credit freeze unless you have actually already been a victim of fraud. However, credit freezes are relatively inexpensive (under $10 per credit bureau at the time of publication). Unlike fraud alerts, you must place an individual freeze at Equifax, TransUnion, and Experian.

Additionally, the credit bureaus also offer a service known as a "credit lock." Equifax has even announced that it will be giving away credit locks for free to victims of the breach. While credit locks are advertised by the credit bureaus as more convenient than freezes,  it is unclear whether or not they offer the same protections. Credit freezes are generally covered by state law, potentially giving you more protection in the event that there is a problem.

5. Keep It In Perspective

The truth is that identity theft is a growing crime. Over $16 billion dollars was stolen by fraudsters and approximately 15.4 US consumers were affected by identity theft in 2016 alone. Even before this Equifax data breach, your personal information may have been vulnerable to thieves in one way or another.

It has always been and will continue to be your personal responsibility to check your credit reports regularly in order to verify that they contain only accurate information about accounts you really applied for and opened yourself. (Remember, you can check your 3 credit reports every 12 months for free at AnnualCreditReport.com.) If you ever discover fraudulent accounts on your credit reports the Fair Credit Reporting Act (FCRA) gives you a long list of rights with a lot of teeth to help you recover from the identity theft.

If you want some tips on how to recover from identity theft, CLICK HERE. You have the right to try to correct identity theft issues on your own, but you can also hire a professional credit expert to work on your behalf if you are too busy or feel too overwhelmed by the process.

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Michelle Black is an author and leading credit expert with a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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Coming Soon: A New Credit Score Boost for Millions of Americans

Arguably the biggest change to impact credit reporting (and by extension credit scoring) in decades will be going into effect within just a few months. In July of 2017 the 3 major credit reporting agencies (CRAs) - Equifax, TransUnion, and Experian - have announced that they will remove a significant number of the tax liens and judgments which are currently appearing on consumer credit reports. The pending removal of these derogatory public records could potentially boost credit scores for millions of Americans.

Reasons Behind the Change

There is nothing illegal about a credit reporting agency placing a judgment or a tax lien on your credit reports as long as they comply with the law. Of course if incorrect information is reported (i.e. wrong balance, incorrect dates, a public record which is not yours) that is another story all together.

It is important to understand that the Fair Credit Reporting Act (FCRA) absolutely allows for certain types of accurate public record information to appear on credit reports. Judgments have an FCRA requirement to be removed after 7 years and paid tax liens fall under the same 7 year removal requirement. According to the FCRA unpaid tax liens never have to be removed from credit reports, making them currently one of the most difficult credit problems for a consumer to overcome. However, in July this previously massive credit reporting problem is going to simply vanish from the credit reports of many American consumers.

As already mentioned, there is no FCRA requirement to remove public records such as tax liens or judgments from credit reports unless they have been reporting longer than is legally allowed. What then would prompt such a massive change in credit reporting procedure by Equifax, TransUnion, and Experian? The answer is regulatory concerns.

According to a statement released by the Consumer Data Industry Association (the trade organization of the credit reporting agencies), interim president Eric Ellman attributes the changes in credit reporting procedures as being part of the National Consumer Assistance Plan (NCAP). The NCAP was created after the 2016 settlement between the CRAs and 31 different state attorneys general. (Initially the settlement was reached between the CRAs and the New York Attorney General. You can read more about that first settlement here.)

Per Ellman, as a result of the NCAP the credit reporting agencies " have developed enhanced public record data standards for the collection and timely updating of civil judgments and tax liens." These new standards include a requirement for "a minimum of consumer personal identifying information (PII)" such as a consumer's name, address, social security number and/or date of birth to be verified in order to include public record information on a consumer's credit reports. Additionally, a minimum frequency of courthouse visits (specifically at least every 90 days) to update public record information is required under the NCAP. Most of the tax liens and judgments currently appearing on consumer credit reports do not meet these standards set forth in the NCAP and, as a result, will be removed from credit reports altogether in a few short months.  

What the Change Means for Consumers and Lenders

FICO credit scores, the chief credit score brand currently used by most lenders, are designed to consider public records such as tax liens and judgments whenever a consumer's credit scores are calculated. When the aforementioned public records are present a consumer's credit scores are normally impacted negatively. As a result, when the CRAs remove a public record (or multiple public records) from a consumer's credit reports the consumer's credit scores are almost certain to move upward, perhaps significantly. Translation: up to 12 million Americans could potentially see an immediate increase in their credit scores this summer when the majority of tax liens and judgments are removed from credit reports.

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“up to 12 million Americans could potentially see an immediate increase in their credit scores this summer when the majority of tax liens and judgments are removed from credit reports.”

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Lenders are understandably troubled regarding the pending change in credit reporting procedures when it comes to public records. After all, lenders rely heavily upon both credit reports and credit scores to predict the risk of doing business with new applicants. Removing tax liens and judgments from credit reports will lead to credit score increases for many consumers, making it more difficult for lenders to accurately evaluate the credit risk of new prospective customers.

Many consumers, on the other hand, are thrilled by the prospect of the upcoming change which could lead to higher credit scores. Of course it is important for these consumers to remember that the removal of a tax lien or judgment from a consumer's credit reports does not make the issue simply go away.

Consumers applying for a mortgage, for example, will probably not be off the hook when it comes to unresolved tax liens and judgments. Although a tax lien or judgment may no longer be appearing on the applicant's credit reports that does not mean that the items will not show up when the lender performs a public records search of its own. Lender requirements to pay outstanding judgments or tax liens (or at least enter into an acceptable payment plan) are not going to change because the public records may be removed from the credit reports. The removal of these items from credit reports could certainly help to bring about a credit score improvement, but that does not mean a legitimate judgment or tax lien would no longer be owed.

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Michelle Black is an author and leading credit expert with a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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Why Your Credit Card Doesn't Show the Current Balance On Your Credit Reports

Do you check your credit reports and scores often, perhaps even monthly? If so, kudos to you on developing a wonderful and wise habit, one which has the potential to really pay off in the future. One of the best ways to achieve and maintain great credit is to monitor your reports and scores closely.

If you do check your credit often then you have probably also become aware of a rather frustrating and puzzling fact when it comes to how your credit card balances appear on your credit reports. Unfortunately, the current balance on your credit card account will generally not line up exactly with the balance which is reflected on your credit reports. Believe it or not, while these mismatched balances can certainly be frustrating, these discrepancies are probably not due to a credit reporting error.

Say Cheese

The balances which are reported by your card issuers to the credit bureaus do not actually represent the real-time activity which takes place on your accounts. In other words, your credit reports will not show an updated balance every time you make a new charge or even when you make a payment. Instead, credit reporting works quite a bit differently.

Your card issuer will actually update the information on your credit reports just once a month. This update occurs shortly after your statement closing date when your card issuer will send a snapshot of your balance and payment information as it is currently reflected on your account at that moment. That snapshot of your balance and other account activity will remain on your credit reports until the information is replaced with a new snapshot the following month.

What Is the Statement Closing Date?

The statement closing date on your credit card account is the date when your bill for the previous month is closed out. It signals the end of your current billing cycle and is also the day when your payment due date is set. Generally the due date will be scheduled for around 25 days after the statement closing date, depending upon your card issuer's policies. If you make any charges after your statement closing date those new charges will be added to the following monthly statement.

It is important to find out your statement closing date from your credit card issuer since this date (or very soon thereafter) is when your balance will be updated with the credit bureaus. Whatever your balance is on your statement closing date (or very soon thereafter) it will remain as such on your credit reports for the next month.

A Zero Balance On Your Credit Reports

Your revolving utilization (aka credit utilization) is a big deal when it comes to your credit scores. Credit scoring models are designed to reward consumers who have zero balances on their credit card accounts. However, even if you pay off your credit cards in full each month (kudos again on a great habit) your credit scores might not be benefiting from that commitment and discipline. 

Here is an example to demonstrate why simply paying your credit card accounts off in full each month may not be enough to earn the great credit scores you desire.

·        Total Credit Card Balance on Statement Closing Date (5th of the Month): $1,500

·        Credit Utilization on Statement Closing Date (5th of the Month): 75% ($1,500 Balance/$2,000 Limit = 75% Utilization Ratio)

·        Date Balance and Utilization Reported to 3 Credit Bureaus: 6th of the Month

·        Date Current Balance Paid In Full: 30th of the Month (Due Date)

·        Balance to Appear on Credit Reports Until 6th of the Following Month: $1,500 (75% Utilized)

In the example above even though the credit card balance was ultimately paid in full on the due date and, therefore, no interest fees were owed, the balance which would show up on the consumer's credit reports would be the one which was accurate on the statement closing date ($1,500 in this case). Since that balance leaves the cardholder heavily utilized (75%), there would almost certainly be a negative impact upon the cardholder's credit scores as a result, even though no late payments were made and even though the balance was actually paid in full by the due date. If the card holder continued to utilize the card and pay it off on the due date each month then this credit-score-damaging cycle would continue to repeat over and over again.

A Better Way to Pay

The good news is that your statement closing date is not a secret and by paying off your balance in full a few days prior to that date your card issuer should report a $0 balance to the credit bureaus on your account. You can typically find your statement closing date on your credit card statement or you can give the card issuer's customer service department a call for this information as well. Once you find out your statement closing date you will simply need to rearrange the date when you pay off your credit card balance each month.

By paying off your credit card balance each month a few days prior to your statement closing date your balance will actually be $0 when your monthly statement is released. As a result, the balance on your credit reports for the following month should be reported as $0 as well.  This wise practice will not only help to save you money which might otherwise be wasted in interest charges, but you will also be setting yourself up for a credit score triumph as well.

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Michelle Black is an author and leading credit expert with nearly a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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Your Credit Card Balance Could Be Hurting Your Credit Scores

Welcome to part 1 of the HOPE4USA.com Credit Card Mastery Series.

In today's episode we will be covering the key ingredient which determines whether your credit cards will help your hurt your credit scores. That key ingredient? It's you.

Credit cards can be powerful credit building tools; however, credit card debt is never good for your credit scores or your wallet. Learn how to take control of your credit card debt once and for all - your credit scores and your wallet will thank you!

Visit HOPE4USA.com or follow us on Facebook during this informative weekly series so that you can learn how to turn your credit card accounts into powerful credit building tools. 

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Michelle Black is an author and leading credit expert with nearly a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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