Welcome to today's live chat! Joining us today is Janet Bodnar, editor of Kiplinger’s Personal Finance Magazine, and in-house credit experts Joan Goldwasser and Lisa Gerstner. For the next hour, they’ll be offering advice and taking your questions about how to manage credit and debt. And, as an added bonus, we’ll be giving away free copies of our best-selling 100 Top Money-Saving Tips to several lucky viewers.
Thanks for joining us Janet, Joan and Lisa!
It's my pleasure to be here.
Thank you! Happy to be here.
To get us started, can you talk a little bit about what factors have the most impact on your credit score?
Definitely paying your bills on time.
Paying bills on time accounts for 35% of the score, so that's #1.
Also, holding down your balances to less than 30% of your credit limit--and preferably even less.
And you want to apply for credit cards sparingly. Taking on a bunch of cards at once can drag down your score.
So, two factors account for a large majority of your credit score. Definitely something to keep in mind.
Now, let's get started with reader questions!
Also don't close a number of accounts at the same time
The first one is from a young reader wondering how she can improve her credit score.
Question: Is there some reason why you want to improve your score if it's already decent?
If you keep your balances low relative to your credit limit and pay on time every month, your score will gradually increase
Right. Just keep doing what you're doing.
Sounds like you're on the right track--make sure you're keeping an eye on those store accounts. Interest rates on those can be very high.
Yes, Susie, paying off your cards will help your credit score. It's best to focus on high-rate cards first.
Calculate how much interest you will pay if you borrow the money and compare that to what you'll pay if you continue with your current plan. There are a number of calculators on-line that will help with those calculations. Then you can make an informed decision.
Paying off any debt helps your credit score because you are using less of your total available credit and obviously you want to pay off the highest-rate debt firs.
Thanks, Joan. I'll search for a few of those calculators. In the mean time, our next question is from another young reader.
yes, it does. You receive the benefit of their payment history - assuming it's a good one . It could hurt if they have large balances and don't pay on time.
Well, that's a tricky one. Yes, it will help--but only to a certain extent. Because you're young you don't have a long credit history, so you probably still won't qualify for the best rates even if your parents have a good credit score.
According to FICO, being an authorized user does help you build a credit history and score.
Do you have any tips on how someone just starting out can build up his or her credit score?
If you only have one account--say, the one with your parents--you can apply for another account on your own.
Young people often have a hard time getting credit because their credit files are thin. It's a good idea to check with your bank or credit union--it might be more willing to offer a credit card to someone just starting out than a standard issuer.
If you have a student loan or car loan, be sure to faithfully pay on time. Apply for a credit card and pay on time. You don't have to buy much. Just make sure those payments arrive faithfully.
Next question is from Wayne.
Joan, I think you have some thoughts on that one.
Yes, it can although the impact doesn't last long. More important will be the fact that you will have less overall credit so you have to be sure to monitor your spending and make sure you don't go over 30% of your limit.
Yes--if you have debt on remaining cards, the amount of debt you have relative to your credit limits could go up.
So is it best just to let those old accounts sit there?
Sometimes it makes more sense to just put those cards away rather than cancel.
You don't have to worry about lowering your average account age, though--that stays with you after you close cards.
Since you have the discipline not to overspend with them, I'd keep the accounts open
Now, a follow-up from Young&Trying.