Credit history

How a Goodwill Letter Can Save Your Credit Score

Financial mistakes can cause hefty damage to your credit score. If you pay your credit card bill more than 30 days late, for example, your score can tumble by 100 points. If you have a foreclosure on your home, your score can fall by 150 points or more, depending on how long ago your lender filed for foreclosure. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

These mistakes stay on your three credit reports — one each maintained by Experian, Equifax, and TransUnion — for seven to 10 years.

There may be some hope of removing those financial mistakes sooner, however. Consumers have had some success requesting that banks, lenders, and other creditors remove their late or missed payments from their credit reports early by writing what is known as a goodwill letter — letters sent to creditors outlining the reasons for their missed payments, explaining why they’ll never miss a payment again, and requesting that these creditors remove the financial mistake from their credit reports.

These letters offer no guarantee of success. Some creditors will simply respond that they are legally required to report the financial mistake for the set period of time. Others won’t respond at all.

But if there’s even a slim chance that a goodwill letter will work, why not try it?

When goodwill letters do the most good

The most common financial mistake that ends up on credit reports — and the one that goodwill letters have the best chance of erasing — are late payments. It’s important to realize, though, that late payments are only officially late for credit purposes when they are more than 30 days past due.

Missed payments stay on your credit reports for seven years. How much these payments lower your FICO score varies depending on how high your score was to begin with and several other factors. But…

Can Too Many Credit Cards Hurt Your Credit Score?

You’re checking out at your favorite department store when the cashier asks if you’d like to apply for the store’s credit card. Doing so will save you 10 percent on your purchase. Should you fill out the application? Or will having too many credit cards in your wallet ding your three-digit FICO credit score?

According to myFICO.com, there is no “golden number” of credit cards that will hurt or help your credit score. What matters most is how you use those cards — namely, paying your bills on time. Still, there are a few important things to remember when you have multiple credit cards.

Inquiries ding your credit score

Whenever you apply for a new credit card, your FICO score will fall slightly. The creditor behind the plastic will order a copy of your credit report from one of the three national credit bureaus: Experian, Equifax, or TransUnion. This inquiry will then show up on your credit reports.

An inquiry will temporarily drop your credit score because whenever you apply for new credit, there is a risk that you will borrow more money than you can afford to pay back. How much your score will drop varies, but myFICO says that for most people, a single inquiry will result in a drop of five points or less.

The drop in your score might be steeper, however, if you apply for several credit cards in a short period of time. There’s a statistical reason for this: myFICO says that people who have six or more hard inquiries on their credit reports — inquiries made by a lender with whom you’ve applied for credit — are up to eight times more likely to declare bankruptcy than consumers who have no inquiries. Hard inquiries remain on your credit reports for 24 months before falling off.

The smart move is to apply for new credit if you need it and plan to use it. Don’t apply for new credit cards just to get a store discount you’ll use a few times.

Use your cards wisely

What’s more…

How to Read a Credit Report

Building and maintaining your credit history takes time and dedication. While there are many things you can do when shooting for that perfect 850 FICO score, checking your free credit report every year from AnnualCreditReport.com is among the best personal finance habits. Once you have a copy of your credit report, let’s review step-by-step what to look for.

1. Check your personal information

First things first: Make sure that your credit report correctly shows your name, Social Security Number (SSN), phone number, and address. The three credit bureaus (Equifax, Experian, and TransUnion) keep track of all variations of names and SSNs reported as belonging to you.

You can easily rectify a small error, such as a misspelling, absence of a hyphen in a last name, or transposition of a street number by contacting the credit bureau and providing supporting documentation. Keep an eye out for information that you don’t recognize at all — this may be a sign of identity theft. (See also: Don’t Panic: Do This If Your Identity Gets Stolen)

2. Verify it’s really you

Even after checking that your full name and address are correct, you may recognize some accounts on your report that belong to somebody else in your household. In this case, you may be a victim of a mixed file — when the credit information of two individuals sharing the same name gets mixed up in a single report.

This can be a potential issue in multigenerational homes with several family members sharing the exact name. For example, John Smith Jr. opens a store card but the credit bureaus list the account on the father’s report (John Smith Sr.) instead of the son’s. That would be a mixed file.

3. Watch out for errors in account ownership

Going back to the example of the father and son, the father may have decided to open the store card in his name, and then add his son as an authorized user, or vice versa. Make sure that reported accounts are only the ones for which you are the owner.

4. Look out for accounts incorrectly reported as late or delinquent

Unless you were…

How to Remove a Cosigner from a Student Loan

Adding a cosigner to a student loan has become common practice. After all, very few students can qualify for a loan based on their own income and credit profile. A cosigner is usually needed in order to get the loan approved, particularly with private student loans.

But given that student loan repayments can run as long as 25 years, does it make sense to keep your cosigner on the loan for the entire duration of the term? There are risks to your cosigner, and that’s why you should want to remove them from your student loan as soon as possible.

Why You Should Remove Your Cosigner

Cosigning a loan isn’t something that’s part of a casual arrangement. There are implications for the cosigner, which could affect his or her credit standing. It could even impair their overall financial situation. If the cosigners are your parents – which is usually the case – the best strategy is to have them removed from the loan as soon as you can.

For example, your payment history on the loan will affect your cosigner’s credit. If you make any late payments, they will show up as derogatory entries on your cosigner’s credit report, in addition to yours. Naturally, should you default on the loan, your cosigner will be called upon to satisfy the obligation. That can cause serious distress to your cosigner, particularly since student loan amounts are typically large.

Read More: How to Refinance Your Student Loans

There’s one other factor that’s seldom considered in regard to cosigner arrangements. When your cosigner goes to apply for a loan for themselves, the cosigned student loan will likely show up on their credit report. Most lenders will consider this a full obligation of your cosigner. That being the case, it’s possible that your cosigner will be declined for their own loan application, even if you have assumed full responsibility for your student loan’s repayment. When adding the student loan payment to their other obligations, the new lender may decide that their total debt ratio is too high to justify approval.

When you remove a cosigner from a student loan, you not only protect their credit, but you also free them up to borrow for their own purposes in the future. For that reason, you should actively pursue a cosigner release as soon as you are eligible.

Federal Student Loans

Most federal student loans will enable you to qualify even without a cosigner. Federal student loan programs recognize that you are in fact a student, and lack the income and credit profile typically required to support the loan. Repayment is based on your securing employment after graduation.

However, there is one federal student loan type, a Direct…

5 Myths About Credit Cards That Won’t Go Away

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The idea of evaluating a person’s creditworthiness goes back as early as 1899, when Equifax (originally called Retail Credit Company) would keep a list of consumers and a series of factors to determine their likelihood to pay back debts. However, credit cards didn’t make an appearance until the 1950s, and the FICO score as we know it today wasn’t introduced until 1989.

Due to these timing differences, many U.S. consumers hold on to damaging myths about credit cards. Let’s dispel five of these widely held but false beliefs and find out what to do to continue improving your credit score.

Myth #1: Closing unused cards is good for credit

Remember when United Colors of Benetton used to be all the rage and you shopped there all the time? Fast forward a decade; you don’t shop there anymore, and you’re thinking about shutting down that store credit card. Not so fast! Closing that old credit card may do more harm than good to your credit score.

Your length of credit history contributes 15 percent of your FICO score. If that credit card is your oldest card, then closing it would bring down the average age of your accounts and hurt your score. This is particularly true when there is a gap of several years between your oldest and second-to-oldest card. Another point to consider is that when you close a credit card, you’re reducing your amount of available credit. This drops your credit utilization ratio, which makes up 30 percent of your FICO score.

What to do: Keep those old credit cards open, especially when they are the oldest ones that you have. Just make sure that you’re keeping on top of any applicable annual fees and they’re not tempting you to spend beyond your means.

Myth #2: Holding a credit card balance is good for credit

Your payment history is a more influential factor to your FICO score than your total amount owed to lenders (35 percent versus 30 percent, respectively). This means that if you have a choice between paying off and holding on to debt, it’s generally better to pay it off. However, responsible…

6 Infuriating Ways You’re Ruining Someone Else’s Credit

Your credit score is one of the biggest deciding factors in your financial health. It influences whether you qualify for the best interest rates on mortgages or auto loans, it can impact your insurance rates, and it can even determine whether you land that dream job or not.

Establishing good credit requires managing your credit accounts responsibly. But your own credit score isn’t the only one that can suffer the consequences of poor credit management. In the same way money can ruin a friendship, your financial carelessness could ruin someone else’s credit. Here’s how.

1. Charging up someone else’s credit card

Becoming an authorized user on someone else’s credit card helps build your own credit history. You’ll receive a credit card in your name, and you’re allowed to make charges on the account. But even though your name is on the card and the account shows up on your credit report, only the primary account holder receives the statements. This person is ultimately responsible for any purchases you make with the card.

If you’re an authorized user, the mature thing to do is pay whatever you charge each month. If you don’t or can’t pay, this sets in motion a chain of events that could ruin the other person’s credit.

Any purchases you charge to the account can raise the primary account holder’s balance and increase their credit utilization ratio beyond a healthy range (utilization ratio is the credit card balance compared to the credit limit). Ideally, credit utilization should never exceed 30 percent of a credit limit — the lower, the better. A high utilization ratio can lower credit scores.

In addition, ringing up charges on someone’s credit card and not paying what you owe could trigger payment problems. This can happen if the primary user doesn’t have enough money for higher minimum payments. If they can’t pay the credit card bill within 30 days, the credit card company could report the late payment to the credit bureaus. While a 30-day delinquency won’t tank a credit…