How does the credit scoring formula look at charge cards?

This post originally appeared March 15, 2018 on as “Can adding authorized user to charge card help them build credit?

By Barry Paperno

Dear Speaking of Credit:
I’m adding an authorized user to my American Express Gold to help this person rebuild credit – and for me to earn rewards.

However, this card does not have a preset limit. Does this even help improve this person’s FICO credit score? Or will it hurt the authorized user’s credit because there will not be a debt-to-credit ratio?

There will only be a high balance indication. And this person does not have any other credit line out there.

Dear Megan,
Good question. And good idea adding an authorized user whose additional card use can help generate enough additional rewards points to make that American Express Premier Rewards Gold card worth the $195 annual fee (after a free first year).

Yet, while helping you accumulate those points, I understand your concern over the card’s impact on the authorized user’s credit score, especially since this authorized user doesn’t have any other open “revolving” credit.

We’ll focus on why this lack of available credit matters and how this American Express Premier Rewards Gold card, and other “charge” cards, do and do not help authorized users’ credit scores.

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Should you stay away from Cap One over 3-bureau pulls?

This post originally appeared March 8, 2018 on as “Should I avoid applying for a card that pulls all three bureaus?

By Barry Paperno

Dear Speaking of Credit,
I read recently in a Million Mile Secrets story that says some folks avoid Capital One cards because they pull three main credit bureaus when they process your application.

Is that true? If so, does that mean that the credit ding from applying for a Capital One card or loan would lower my credit score more than it does when I apply for cards through other issuers? Thanks! – Jeff

Dear Jeff,
It’s true. I was able to confirm with Capital One that it does indeed pull credit scores from all three big credit bureaus – Equifax, Experian and TransUnion – before approving a credit card application.

What makes this rather extensive credit checking process unusual is that card companies traditionally rely on just a single bureau’s information when making a card-issuing decision.

Why does the number of bureau pulls matter? As you’ve pointed out, scores can be impacted by whether the bank pulls one, two or three inquiry-generating credit pulls for the same applicant.

Thus it is the savvy consumer in you that questions whether pulling three scores for a credit card application is a good idea.

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Harder to raise score from 832 to 850 than you might think

This post originally appeared March 1, 2018 on as “Why can’t I reach a perfect credit score of 850 points?

By Barry Paperno

Dear Speaking of Credit,
My credit scores generally run from 825 to 832, but appear to ding from the utilization percentage on my cards.

I carry no balance forward ever, using and paying my primary reward card in full every month. I also use a couple other cards and always pay in full just to keep active.

I have 40-plus years of never missing a payment on anything, two mortgages paid in full, auto loans always paid off early, and I still can’t seem to get it any higher than 832. Am I doing anything wrong?  – Mike

Dear Mike,
Yours is a good problem to have. Should you be successful at raising your score above 832, that’s great.

If not, and you’re forced to live with scores in the 825-to-832 range – well, that’s great, too. In fact, with scores that high, why even care, let alone obsess, about a perfect score?

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What causes your card company to cut your credit limit?

This post originally appeared February 22, 2018 on as “‘When paying off multiple credit card balances backfires

By Barry Paperno

Dear Speaking of Credit,
I recently had 16 unsecured/revolving credit cards. I paid off/closed six in December 2017. I carry a low/zero balance on 10.

Recently, I received letters from three accounts that my limit was greatly lowered. Two of these were at a zero balance and one has a balance that was paid down to only 10 percent of the limit. I am steadily (within the first quarter of 2018) going to zero out the 10 cards I still owe on.

I thought paying off and either leaving open or closing would show responsibility, but it seems like a punishment. My main goal is to get my score up.

My question is, should I close the accounts that have been involuntarily lowered? Should I just keep expecting letters of lower limits? – Shannon

Dear Shannon,
With those recently lowered credit limits, you seem to have suffered the consequences of a common card company practice called “account review.”

Based on a combination of credit bureau information, credit scores and a card company’s own track record with a customer, the account review process helps lenders:

  • Recognize excellent low-risk customers by raising credit limits and making promotional offers, such as 0-percent balance transfers.
  • Stay a step ahead of cardholders heading for financial trouble by closing credit cards, lowering credit limits and allowing cards in poor standing to expire without renewing.

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Can balance transfer before a major purchase be a bad idea?

This post originally appeared February 15, 2018 on as “‘How a balance transfer can negatively impact your credit score

By Barry Paperno

Dear Speaking of Credit,
Please help! I have had a 750 or higher credit score for years. I pay on time, and keep a balance on one or two cards. Recently, I received a notice from Experian that my credit score was reduced by 47 points! I am completely panicking as I work hard to maintain it.

I called Experian, and they literally cannot figure it out. This is obviously frustrating as they are the ones who are lowering my score.

I believe it was caused somehow by my accepting an offer for a Wells Fargo 0 percent interest card, and doing a balance transfer. I used the Wells card’s credit limit – $8,000 – to pay off two other cards – my AmEx and my Citi Diamond card, which have now a zero balance.

Can you help me figure out what caused this? I was under the impression I would get a better score as I increased my credit availability overall by $8,000 but did not increase my debt.

I am buying a car soon. I am terrified this will affect me negatively. Thank you so much for your help. – Kirk

Dear Kirk,
Despite Experian’s understandable difficulty in accounting for your 47-point score loss, you appear to have hit the nail right on the head. Your score drop was no doubt caused by the opening of that Wells Fargo card and the balances transferred to it.

From a common-sense standpoint, you did the right thing by accepting this 0-interest card offer, especially since you had existing card balances incurring (probably) high interest. But from a credit scoring standpoint and considering you’ll be looking to finance a car soon, it might not have been the best timing.

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How good credit can instantly appear, then disappear

This post originally appeared February 8, 2018 on as “‘How will removing authorized user affect their credit score?

By Barry Paperno

Dear Speaking of Credit,
Someone without any credit history gained a high credit score after being added on my major credit card as an authorized user.

It has been only five months and this person had zero credit history prior to being placed on my card as an authorized user.

How would it affect this authorized user if I terminate them from my credit card account? And if so, how soon will it affect the authorized user’s account? – Najwa

Dear Najwa,
As your authorized user friend has no doubt found out by now, a consumer can indeed go from having no credit history or credit score to a high credit score – mid-to-upper 700s – literally overnight.

All she has to do is piggyback as an authorized user on someone else’s credit card account. An account, by the way, that she will bear no legal responsibility for – even when actively using it.

Here’s the reason why this way of establishing a credit score can work so easily: Most credit card issuers not only report account information monthly to the credit bureaus in the names of their primary account holders, but also in the names of the authorized users of those cards.

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Don’t cut off your nose to spite your face (credit-wise)

This post originally appeared February 1, 2018 on as “‘Can parking tickets still be reported to credit bureaus?

By Barry Paperno

Dear Speaking of Credit,
In your Aug. 31, 2017, article, “Library fines, parking tickets no longer trash your credit,” you mentioned that parking tickets or any other debt not resulting from a contract or agreement to pay should not be reported to a credit bureau.

Well, I have a situation here in which I “refused” to a pay a parking violation to University Parking Service because I felt it was not right. The university went ahead and tasked its debt collector to collect that debt, but the debt was listed as tuition debt. It is now reflected on my credit report.

My question to you is, since the parking violation of $100 dollars (plus a collection fee of $115) was not from a contract to pay, should it even be reported on my credit report?

Also, could you please send me a link that directs me to the actual ruling that applies to parking tickets or library fees? Thanks so much. – Allan

Dear Allan,
Have you ever heard the saying, “Don’t cut off your nose to spite your face?” It means don’t hurt yourself trying to hurt someone else. Or, in this instance, the University Parking Service.

The parking lot company and the collection agency hired to collect the $100 they say you owe have had the last word by tacking on fees to that parking ticket debt and adding a score-damaging collection to your credit report.

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Q&A: Mortgage shopping, forbearance, hard & soft inquiries

From a Speaking of Credit reader….

By Barry Paperno

Dear Speaking of Credit,
What is the best way to shop for a mortgage without getting too many hard inquiries?
Before you start, get your reports and FICO mortgage scores (Experian 2, Equifax 5 and TransUnion 4) from — the exact same scores most mortgage lenders use that are only available there. They will cost you about $60, but the inquiries won’t affect your score and you’ll know where you stand with lenders.

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Was paying off a defaulted card balance a good idea?

This post originally appeared January 25, 2018 on as “‘Q&A: What to do after defaulting on a credit card

By Barry Paperno

Dear Speaking of Credit,
I recently got defaulted from a Banana Republic credit card for missed payments. That has affected my credit score, and I am now trying to get back on track.

I recently paid off the remaining balance in full and am looking to cancel this card for good.

My question: Was paying off the remaining balance in full the best decision credit-wise? And what do you recommend for me moving forward? – Daniel

Dear Daniel,
Let’s start with the no-brainer answer to your first question of whether paying off the remaining balance was a good idea. Absolutely!

Despite those missed payments that hurt your credit score, you did right by paying off that card balance, since doing so can:

  • Stop additional interest and late charges.
  • Prevent a collection agency from entering the picture.
  • Start the “credit rebuilding clock” ticking.

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After paying late, some points return quickly, others don’t

This post originally appeared January 18, 2018 on as “‘How quickly can my score recover from a late payment?

By Barry Paperno

Dear Speaking of Credit,
My credit score dropped over 50 points and my husband’s fell 105 points for one 30-day-past-due car payment. We had been in good standing for almost two years before that mistake.

Will my late payment be reported as paid now that I have paid it? And if so, will that bring the score back up? A drop of 105 points is a lot!

We’ve been trying to work on our credit to buy a house. Thanks. – Tina

Dear Tina,
Sorry to hear of this setback following your diligent credit rebuilding efforts over past couple of years.

As you will see, despite these score losses, your hard work has not been in vain. Yet a good dose of patience may be required over the coming months as you look to undo the credit score damage from this untimely mistake.

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