We recently had the pleasure of sitting down with Rod Griffin, Director of Public Education with Experian. Experian is a leader in the credit services industry and is 1 of the 3 main credit bureaus that create, manage, and report your credit score. You see the Experian name anytime you run a credit report or score. Rod was kind enough to provide candid answers to many of the questions that our users have asked us. We figured, what’s better than going straight to the source?
We’ve divided this interview into 4 parts:
- Part 1: Credit Basics
- Part 2: Denials and Closing Accounts
- Part 3: Let’s Talk Numbers
- Part 4: User-Submitted Questions
Part 4: User-Submitted Questions is below. We hope you enjoy and learn something along the way!
RS: Does anyone have a perfect credit score? How achievable is that, is it meaningful to pursue that? [Only answer this if you want to: Do you have a perfect score? If you don’t, how can anyone!?]
RG: It is indeed very difficult to achieve a “perfect” credit score, regardless of the credit scoring model. This is because each scoring model is different and there is always some risk associated with taking on debt, such as being unable to pay it back due to an illness or an unforeseen accident. That said, going after a perfect score is really unnecessary, as lenders don’t require a perfect score in order to offer their best rates. Generally speaking, as long as you are in the “excellent” range, you will be in a great position to qualify for a loan.
RS: Over the summer, I got a credit score in the mail from a denial of credit that had my score from Experian rated on a scale to 900. Why might that be instead of the traditional 850 scale? It was described as a FICO score.
RG: The Dodd-Frank Act requires lenders to provide an adverse action notice anytime an application is denied or, in the case of risk-based pricing, the consumer does not receive the best available rate. The notice must include a credit score used by the lender in making that decision and an explanation of that score. As a reminder, Experian does not create credit scores, we only generate credit reports. What the statement you received really means is that the credit score was calculated using credit report information from Experian. Experian may “apply” a credit score specified by the lender when the report is requested, meaning we compile the report and then route it through a scoring algorithm that is proprietary to the scoring company, such as FICO. In many cases we send the report to the lender and it then calculates a score.
If it was indeed a FICO score, there are certain FICO industry scores that have a range to 900, some even higher. These are usually industry-specific scores such as a mortgage credit score or auto score. While I cannot speculate as to why you were specifically not approved, do keep in mind, credit scores are not the only factor lenders consider when deciding whether to give you a loan or line of credit – income, collateral, capital, and more are also evaluated, and may weigh more heavily in a lending situation than a credit score.
RS: For an “authorized user” account, does that count as a hard inquiry on the authorized user? How may someone’s credit be impacted by being an authorized user on another’s account?
RG: When someone adds you as an authorized user, it does not count as a hard inquiry for the authorized user or the main account holder. A person’s credit can certainly be impacted by being added as an authorized user, for better or worse. For someone trying to build their credit, becoming an authorized user on another person’s card can often be a great step, as the positive account payment history will be reflected in the authorized user’s report.
Experian will remove the account from the authorized user’s credit history if it becomes delinquent. The authorized user has no responsibility for the debt, so it is a relatively safe way to establish a credit history for the first time. The primary account holder takes more risk when they add someone as an authorized user. If the authorized user abuses their privilege and runs up debt, the primary account holder is responsible for paying it.
RS: Is it correct for the primary user’s address to show up on the authorized user’s report, or should that be removed?
RG: It depends entirely on the credit card and how the authorized user was added. It is possible for the primary user’s address to appear because that is the address associated with the account. Identifying information, such as addresses, do not affect credit scores. As long as the authorized user recognizes the address and knows that it is not the result of fraud, there should be no adverse impact with it appearing on their credit report. It simply is an accurate reflection of the address reported by the lender as associated with the account.
RS: Does it matter if some bureaus don’t have the same employment information (or correct “current employer”)? Why?
RG: The employment listing on a credit report is not an employment history. Rather, it reflects employers reported by lenders from your applications for credit. If you change jobs several times before submitting a new application for credit, you likely would not see all of your employers in that timeframe listed. Thus, if you haven’t applied for any new lines of credit since starting a new job, the report will still show your old employer as current. The employer listing is really used as an additional identification tool that can be matched to the employers you list in a new application. Matching a number of them shown in your report with those you provide in an application helps verify you are who you claim to be. You might see different employers listed in credit reports from different agencies. The most likely cause would be that one of your lenders reports account information to only one or two of the national credit reporting companies, and not all three, causing an employer to not be listed in one or more of the credit reports.
Again, it is important to remember that employer information does not impact your credit score. Rather, the employer listing can be used to verify your identity when applying for credit or other services.
RS: I’ve heard that if I’m late paying my statement it doesn’t affect my credit until I’m 30 days or more late, is that right? How do late payments work?
RG: In order for a late payment to show up on your credit report, you must miss a full billing cycle, so yes, that would be about 30 days from the missed payment date. If you are only a day or two late, these shouldn’t appear on your report, though you will still be susceptible to late fees or other penalties from your lender.
RS: Is my credit card balance information reported at the end of my billing statement or on some other schedule?
RG: The account balance that appears in your credit report is typically the balance shown on your billing statement. Lenders generally report your account at or shortly after the close of the billing cycle for your account.
RS: You mentioned knowing people with many credit cards. What are the considerations related to “credit card churning” and the impact that might have on your credit?
RG: Having dozens of credit cards does not necessarily impact your credit, either for better or for worse. As long as you pay your bills on time, every time, and keep your balances low as compared to your credit limits, you can really have as many cards as you like – or that lenders will approve for you. In the not too distant past, frequently opening and closing accounts was seen negatively. That has changed. Today, people open and close accounts so frequently, it no longer indicates risk. The term “card surfing” has been used to describe the way people move from one to another today.
However, there are issues to consider. First, applying for multiple accounts in a short time period is a significant sign of risk and can hurt credit scores, so it’s not a good idea to apply for multiple accounts all at once. Less significant but still worth considering is that there will be a “hard” inquiry posted for each application. The impact of hard inquiries is minimal and short lived, but still could be a factor if your credit scores or application information is marginal. At least one new credit score now being used by lenders excludes from the calculation multiple inquiries for the same purpose, if they are made within a short time. That includes inquiries for credit cards, so inquiries are becoming an even less significant factor.
More serious than the impact on credit scores is the potential for debt to spiral out of control. People can often let their credit card debt balloon as the number of credit cards in their purse or wallet increases. I would not recommend this practice too anyone who has trouble managing their current cards or has a lot of debt already, as the risk will not be worth the rewards. [RS note: We completely agree. It only works if you are responsible with the credit you get! If you can’t do that, it’s better for you to just watch from the sidelines.]