THE COLOR OF MONEY
Determination of delinquency varies, but why pay late fee?
By Michelle Singletary
I recently invited Evan Hendricks, author of "Credit Scores & Credit Reports: How the System Really Works, What You Can Do," to be my guest during an online chat. Hendricks couldn't get to all the questions (and there were a lot) so I asked him to answer a few more. Here they are:
Q. My brother-in-law seems to think that it's OK to pay bills after they're due so long as you pay them within 30 days of the due date. Is this true?
Hendricks: His point might be that mortgage companies and many other creditors don't report you as 30 days late until 30 days past the "final" due date. For example, your mortgage payment was due Sept. 1; there's a late fee charged after Sept. 16. Some mortgage companies report you 30 days late only if you fail to pay by Oct. 16. However, you still gotta pay all those late fees, which is a waste.
Michelle: Look, your credit scores are calculated using a lot of different data found in your credit report. The biggest factor in determining your credit score is whether you pay your bills on time. Thirty-five percent of your credit score is made up of your payment history.
Do you really want to risk messing up your credit because you think you know how to play this credit game? And some creditors may report you late immediately if you fail to pay by the due date. If you've got the money, just pay the bill on time.
Q. Does it affect your credit score when you pay with a debit card that says "Visa" and rings up as a credit card?
Hendricks: Generally, no.
Michelle: Remember when you use these new debit cards with the Visa or MasterCard logo, you are just accessing your own money. The purchase is not considered a charge.
Q. My husband and I have been unemployed for quite some time and I am worried about my credit as a bar to employment. My creditors are not sympathetic and my credit isn't good, but it isn't because I don't want to pay my bills. I feel I'm in a catch-22 situation. If I don't get a job, I can't pay off my debt. But my debt may preclude me from getting a job. Why is this OK?
Hendricks: I, for one, don't think it's OK. But it is a harsh reality in today's credit score-dominated system.
Michelle: If you are searching for a job and a company wants to pull your credit reports and you know you have poor credit, fess up right away. Let the potential employer know you've had some financial trouble. But explain that it was because you were unemployed, not because you're some deadbeat who irresponsibly walks away from his or her debts.
Q. Is it true that your age, ZIP code number and years on your job can affect your credit score, making it better or worse?
Hendricks: Fair Isaac (the company that created the credit scoring model used by most lenders) adamantly insists this is patently false. However, lenders may evaluate your creditworthiness according to length on your job.
Q. Can a parent be penalized for putting a child's name on his or her credit card to help improve the child's credit score?
Hendricks: Generally, no, unless the child has delinquent payments.
Michelle: Keep in mind if you co-sign on a credit card, whatever happens on that account goes on your credit report, too. Instead of linking your credit with your child's, have them get a secured credit card. With a secured credit card, you put your own money into a savings account, and those funds are used as collateral for your credit line. For example, a credit card company might require you to deposit $500 and, in return, you get a credit card with a $500 credit limit. You build up a credit history by using the card and paying off the charges every month on time. It won't take long before you will be getting offers for a traditional credit card. You can find some of the best secured-card deals online at www.bankrate.com.
Q. I had some credit issues in the past, but I have been clean for the last three years. Will lending companies be receptive to a request to remove negative items from my credit report?
Hendricks: The good news is that the negative information hurts your score less and less as time goes by.
I like the idea of negotiating with the creditor. If you've paid on time for three years, you will be increasingly eligible to switch creditors.
So tell the company you'd like to stay with them, but your asking price is that they send a "Universal Data Form" instructing the credit bureaus (all three) to remove negative data (have them carbon-copy you). It's a bit of a long shot, but worth it in today's competitive credit marketplace.
Michelle Singletary writes for The Washington Post.
