Credit score – LSD News

This credit card behavior is an under-the-radar risk: ‘Be very careful,’ expert says

LSD News Szerkesztőség — Tue, 17 Jun 2025 03:22:54 +0000

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There are all sorts of ways for consumers to misuse credit cards, from failing to pay monthly bills in full to running up your balance. But here’s one risky behavior that experts say you likely haven’t heard of: “credit cycling.”

Credit cards come with a spending limit. Cardholders are usually aware of this limit, which represents the overall cap to how much they can borrow. The limit resets with each billing statement when users pay their bill in full and on time.

Users who credit-cycle will reach that limit and quickly pay down their balance; this frees up more headroom so consumers can effectively charge beyond their typical allowance.

Doing this occasionally is usually not a big deal, experts said. It’s akin to driving a few miles per hour over the speed limit — something less likely to get a driver pulled over for speeding, said Ted Rossman, senior industry analyst at CreditCards.com.

But consistently “churning” through available credit comes with risks, Rossman said.

For example, card issuers may cancel a user’s card and take away their reward points, experts said. This might negatively impact a user’s credit score, they said.

“If there’s even the slightest chance credit cycling can go sideways, it’s best not to do it and look for alternatives,” said Bruce McClary, senior vice president at the National Foundation for Credit Counseling. “You have to be very careful.”

Card companies see credit cycling as a risk

The average American’s credit card limit was about $34,000 at the end of the second quarter of 2024, according to Experian, one the three major credit bureaus. (This was the limit across all their cards.)

The amount varies across generations, and according to factors like income and credit usage, according to Experian.

It’s understandable why some consumers would want to credit cycle, experts said.

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Certain consumers may have a relatively low credit limit, and credit cycling might help them pay for a big-ticket purchase like a home repair, wedding or a costly vacation, experts said. Others may do it to accelerate the rewards and points they get for making purchases, they said.

But card issuers would likely see repeat offenders as a red flag, Rossman said.

Maxing out a card frequently may run afoul of certain terms and conditions, or signal that a user is experiencing financial difficulty and struggling to stay within their budget, he said.

Issuers may also view it as a potential sign of illegal activity like money laundering, he said.

“You could be putting yourself at risk by appearing to be a risk in that way,” McClary said.

Credit cycling consequences

If a card issuer penalizes a credit-cycling customer by closing their account, it could have negative repercussions for their credit score, experts said.

Credit utilization is the share of one’s outstanding debt relative to their credit limit. Keeping utilization relatively low generally helps boost one’s credit score, while a high rate generally hurts it, McClary said.

Experts generally recommend keeping credit utilization below 30%, and below 10% if you really want to improve your credit score.

A canceled card would reduce one’s overall credit limit, raising the odds that a user’s credit utilization rate would increase if they have outstanding debt on other credit cards, McClary said.

Further, a card company could flag misuse as a reason for the account closure, potentially making the user look like more of a risk to future creditors, he added.

Consistently butting up against one’s credit limit also increases the chances of accidentally breaching that threshold, McClary said. Doing so could lead creditors to charge over-limit fees or raise a user’s interest rate, he said.

Consumers who credit-cycle should be cognizant of any recurring monthly subscriptions or other charges that might inadvertently push them over the limit, he said.

What to do instead

Instead of credit cycling, consumers may be better served by asking their card issuer for a higher credit limit, opening a new credit card account or spreading payments over more than one card, Rossman said.

As a general practice, Rossman is a “big fan” of paying down one’s credit card bill early, such as in the middle of the billing cycle instead of waiting for the end. (To be clear, this isn’t the same as credit cycling, since consumers wouldn’t be paying down their balance early in order to spend beyond their allotted credit.)

This can reduce a consumer’s credit utilization rate — and boost one’s credit score — since card balances are generally only reported to the credit bureaus at the end of the monthly billing cycle, he said.

“It can be a good way to improve your score, especially if you use your card a lot,” he said.

Americans pay trillions in rent, but few get credit score boost for it

LSD News Szerkesztőség — Wed, 11 Jun 2025 19:31:07 +0000

An estimated $1.4 trillion is paid to landlords of residential properties every year in America, but only 20% of those landlords choose to report the rent paid. That has big implications for the credit scores and credit histories of millions of Americans.

Reporting rent paid on time to credit bureaus can significantly boost credit scores, but since it has not traditionally been a common practice, some renters end up having no credit history at all, making them “credit invisible,” limiting their ability to get a loan, a car, a house and a lot more. Over 50 million Americans lack a credit history with the three major credit bureaus: Experian, Equifax and TransUnion.

“We’re leaving over $5.3 trillion on the table, we’ve got to do better,” said Wemimo Abbey, the CEO and co-founder of Esusu, which was named to the 2025 CNBC Disruptor 50 list, in an interview on CNBC’s “Worldwide Exchange” on Wednesday.

Esusu is a credit score reporting service which has partnered with 75% of the largest rental companies and more recently created a direct line for renters to report their rent payments. “We have democratized access because you have a long tail of people who don’t live in commercially managed housing,” Abbey said.

Esusu has deals with Goldman Sachs, Mercy Housing, and Cushman & Wakefield, and partnerships with Fannie Mae and Freddie Mac, to increase the number of units nationally that report rent as part of credit.

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What is ‘credit invisibility’

Credit scores, which range on a scale of 300-850, indicate the ability to pay back bills such as credit cards, and manage and limit debt owed. The lower a score, or the lack of any credit score at all, makes lenders hesitant to extend money, or they might charge extreme interest rates on a loan. Some landlords require a credit score on file to determine eligibility for a rental application, and while it’s not the only considered data point, it may influence the landlord to not approve an application.

This financial inequity significantly impacts minorities, with approximately 26% of Hispanic consumers and 27% of Black consumers being credit invisible or unscorable, compared to 16% of White and Asian consumers, according to data from Oliver Wyman. Immigrants are also more susceptible to invisibility as their credit file in the U.S. does not take into account their credit history in their origin country.

Esusu founders Abbey and Samir Goel grew up watching their families struggle financially as immigrants from Lagos, Nigeria, and New Delhi, India, respectively, which was a founding motivation for Esusu.

“When we came here, we didn’t have a credit score. We went to one of the biggest financial institutions to borrow money; we were turned away and had to go borrow from a predatory lender who wanted to lend at over 400% interest rate,” Abbey said. “My mother sold my dad’s wedding ring. We borrowed money from church members and that’s how we got started.”

Abbey said when Esusu started, only 10% of rent payments were reported to credit bureaus. Esusu has established credit scores for 250,000 Americans leading to $50 billion in credit activity, Abbey said.

The startup’s valuation has now reached $1 billion based on demand for the services.

Increasing credit score by paying rent

Rent is one of the largest expenditures for most Americans who do not own a home. More than 90% of renters pay rent on time, but since it’s not reported, there’s no record of it.

Reports can be initiated either by the landlord or by the tenant. Commercially managed housing services may already have connections with one or all three credit report services, but may charge a fee to report it.

Renters also have the option to directly connect with rent reporting services like Esusu, which charges a monthly fee of $2.50 to report timely payment on the renter’s behalf. The record of the amount paid is expected to show up roughly 30 days after it’s been paid.

But paying rent is not enough; it needs to be paid on time. While some agencies may give 30 days to make up for the missed payment, others may not, and that can negatively impact a credit score.

There are some other ways to build credit in addition to the rent reporting for those who lack credit histories or are looking to increase their credit scores. Becoming an authorized user on a family member or friend’s credit card is one way. Getting a secured credit card, that has no annual fee, is another option. Using a credit-builder loan, in which banks provide the total loan amount after you’ve made a certain number of payments, and report your payment activity to the credit bureaus, is also an option for those with limited credit history and those who are credit invisible.

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CFPB fines Equifax $15 million over errors on credit reports

LSD News Szerkesztőség — Sat, 18 Jan 2025 00:16:10 +0000

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The Consumer Financial Protection Bureau fined Equifax $15 million over errors tied to consumer credit reports, alleging the company failed to conduct proper investigations of disputed information, the federal watchdog announced Friday.

Equifax is one of three major credit reporting agencies in the U.S., a group that also includes Experian and TransUnion.

“Equifax ignored consumer documents and evidence submitted with disputes, allowed previously deleted inaccuracies to be reinserted into credit reports, provided confusing and conflicting letters to consumers about the results of its investigations, and used flawed software code which led to inaccurate consumer credit scores,” according to the CFPB’s order.

Why credit reports are important

Credit reports are a ledger of consumers’ borrowing records, such as loan payment history and bankruptcy filings.

The financial consequences of inaccurate information on those reports can be “severe,” said Adam Rust, director of financial services at the Consumer Federation of America, a consumer advocacy group.

“It can change your ability to qualify for a loan, to get a job, to rent an apartment, all kinds of things that are very fundamental to navigating your personal life,” Rust said.

Equifax had ‘flawed’ process, CFPB says

Equifax processes about 765,000 consumer disputes a month, CFPB said.

Its “flawed” dispute policies and technology failures occurred since at least October 2017, “to the detriment of millions of consumers,” according to the CFPB, which alleged Equifax violated the Fair Credit Reporting Act.

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Equifax settled the allegations to “[turn] the page on the CFPB’s long-running investigation,” a company spokesperson wrote in an e-mail.

The company has invested more than $1.5 billion in technology and infrastructure improvements over the last few years, including “significant changes” to its dispute process and consumer support, the spokesperson said.

“Our Purpose is to help people live their financial best and we know consumers and our customers depend on our data for important financial decisions,” they wrote. “Even one error affecting a consumer is one error too many.”

The $15 million civil penalty follows a lawsuit CFPB filed against another credit bureau, Experian, on Jan. 7, alleging the company conducted “sham” investigations of credit report errors. In a statement on its site, Experian said the lawsuit was “completely without merit” and an “example of irresponsible overreach.”

“Credit bureaus have been sued repeatedly for this kind of conduct,” said Chi Chi Wu, senior attorney at the National Consumer Law Center. “They’re decades-old problems.”

An Equifax data breach in 2017 also compromised the personal information of 147 million consumers, for which the company ultimately agreed to settle for $700 million.

How to have good ‘hygiene’ with credit reports

Consumers should check their credit reports at least once a year, Rust said. The Federal Trade Commission also recommends doing a check before applying for credit, a loan, insurance or a job.

Consumers should ensure they recognize identity information on their credit report such as addresses and Social Security numbers, and verify that account information such as debt balances and delinquency status are correct.

“That’s just a good practice of financial hygiene,” Rust said.

Importantly, a credit report differs from a credit score. The latter is a numerical output compiled with information on a consumer’s credit report.

“If you see a sudden change in credit score, that’s a signal,” Rust said.

The three major credit bureaus allow consumers to request a free copy of their credit report once a week. Consumers can request a copy at AnnualCreditReport.com and by calling 1-877-322-8228. Other sites may charge consumers or be fraudulent, according to the Federal Trade Commission.

What to do about a credit report error

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Consumers who see an error on their credit report should dispute it in writing, along with documentation. Send that by postal mail to the credit bureau and request a return receipt, Wu said. Consumers have better odds of resolution by mail than online, she said.

Consumers should also file a complaint with the CFPB and their state attorney general’s office, Wu said.

Consumers can ask that a statement of their dispute be included in their file and in future credit reports, and also ask the credit bureau to provide their statement to anyone who received a copy of their report in the recent past, Wu said.

Consumers who can’t get an error fixed after repeated attempts may wish to consult an attorney, she said.

“Not every error will be worth bringing a lawsuit,” she said. “But if your loan ends up being more expensive because of a credit reporting error, that’s the kind of real harm [for which] you may want to consider litigation.”

Consumers may be able to find an attorney through organizations such as the National Association of Consumer Advocates, Wu said.

This ‘stepping stone’ strategy helps parents boost their kids’ credit score. Here’s how it works

LSD News Szerkesztőség — Tue, 03 Dec 2024 01:17:11 +0000

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Parents who want to help jumpstart their kid’s credit score and credit history can take one fairly easy step, money experts say: Add your child as an authorized user to your credit card account.

The goal is to have a child build credit from a relatively early age by piggybacking off their parent’s — i.e., the primary account holder’s — good credit.

The strategy is generally best for kids in their later teenage years, maybe around 16 years old, or even those in their early 20s, said Ted Rossman, a senior industry analyst at CreditCards.com.

Parents can think of it as a “stepping stone” to building credit, he said.

“It’s gotten harder to establish credit in your own name, and this is one of the tools to get around that,” said Rossman. “It can really help a lot.”

Allowing kids to use a credit card — and showing them how to pay off the debt responsibly — can also “help them learn healthy credit card management skills early on,” said Andrea Woroch, a consumer finance expert.

Why building credit is important

Things to consider

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Parents should only try this authorized user strategy if they themselves have good credit, experts said.

“As long as you pay your bill on time and don’t carry a hefty balance each month, your child will benefit from your positive credit history and credit score, helping them to establish and build credit,” Woroch said.

They should also ideally have an end date in mind.

Perhaps for one to three years, depending on the circumstances, Rossman explained.

Importantly, this would not be a joint account. Legally, the primary accountholder is responsible for all the authorized user’s transactions — meaning a parent is on the hook if their kid misuses a credit card, perhaps by overspending or failing to pay their bill on time and in full each month, he said.

Parents can set spending limits for authorized users, depending on their card provider, experts said.

That means setting a relatively low credit allowance, maybe just enough for the teen to fill up their car’s gasoline tank or go to the movies a few times each month, they said.

Parents don’t even have to give the card to their kids at all.

“The credit benefits actually translate whether they use the card or not,” Rossman said.

Ultimately, parents should make sure they “set clear rules and boundaries as to if and how they can use the card,” Woroch said.

Why parents may want to start locking a child’s credit at a very young age

LSD News Szerkesztőség — Sat, 24 Aug 2024 21:16:18 +0000

Most parents would take herculean steps to protect their children. But many overlook a relatively simple way to help shore up a child’s financial security: freezing the minor’s credit.

This could be especially important in the wake of a major breach in which the Social Security numbers of myriad Americans might be for sale on the dark web. While locking their credit won’t solve all cybersecurity issues related to stolen Social Security numbers, it’s one extra layer of protection parents can implement.

The credit-locking process involves contacting each of the three major credit bureaus — Experian, Equifax and TransUnion — and providing required documentation including the child’s birth certificate, Social Security card, proof of address and parent identification. The bureau then creates a credit report for the child and then locks it, so loans or credit cards can’t be issued using the child’s personal information. The freeze remains in place until the parent, or in some cases, the child, requests that it be lifted, temporarily or permanently.

Parents can take these steps proactively even if there’s nothing to suggest a minor’s credit has been compromised such as unexpected credit card solicitations or bills received in the minor’s name.

It can take some time and effort to lock a child’s credit, but the outlay is minimal compared with what can be a lengthy and emotional credit restoration process. “As an adult, if our credit is stolen, it makes us angry, but we do what needs to be done and we move forward,” said Kim Cole, community engagement manager at Navicore Solutions, nonprofit credit and housing counseling agency. But for children, the emotional impact is much greater, she said. “It can take years to get wind of a problem, and meanwhile the damage can continue to grow.”

Identity theft against children — especially very young ones — often slips under the radar until they are older teens or young adults applying for their first credit card, trying to finance a car or seeking student loans, said Loretta Roney, president and chief executive of InCharge Debt Solutions, a nonprofit provider of credit counseling and other services.

Yet, identity theft for children under age 19 is a growing issue, with this demographic accounting for 3% of all identity theft reports for the first half of 2024, according to Federal Trade Commission data. By comparison, this demographic accounted for 2% of identity fraud reports each year between 2021 and 2023.

Thieves might use a child’s Social Security number, name and address, or date of birth to do things like apply for government benefits, like health care coverage or nutrition assistance, open a bank or credit card account, apply for a loan, sign up for a utility service or rent a place to live, according to the FTC. Locking a child’s credit won’t protect against all of these, but it’s a solid step in the right direction, financial professionals said.

It’s not just strangers committing fraud against children. Cole offers the example of a friend whose uncle had destroyed his credit and started using his niece’s name and Social Security number to open credit cards and max them out. He had the bills sent to his house, and the young woman only discovered the fraud about four years later, when she went to buy a small fixer-upper and realized she had nearly $50,000 of debt in her name and a credit score in the low 500s.

The niece filed a police report, a complaint with the FTC and disputed the items with the credit bureaus, but it took time to resolve. She applied for a secured credit card in the interim, since her score was too low to qualify for a traditional card, and the situation pushed back her home-buying by a few years, ultimately costing her more, Cole said.

Check to see if the child has a credit report

Before locking a child’s credit, it’s good practice to check with each of the three major credit bureaus to see if a report exists. Generally, this will only be the case if someone has fraudulently taken out credit in the minor’s name, or if the child has been named an authorized user on an adult’s credit card.

To check to see if their child has a credit report, parents can mail a letter with their request to each of the credit bureaus. They should be sure to include a copy of the child’s birth certificate, Social Security card or document from the Social Security Administration showing this number and a copy of the parent’s driver’s license or government-issued identification, with current address. Legal guardians may have to give the credit bureaus a copy of documents authenticating their status.

If something amiss pops up on the report, contact the companies where the fraud occurred as well as the three major credit bureaus. Also report the child identity theft to the FTC, including as many details as possible.

If the report comes back clean, the next step is to actually lock the child’s credit.

If needed, freeze a child’s credit

The process for initiating a credit freeze varies slightly depending on the credit bureau and the age of the minor child. Be sure to follow the precise instructions for each credit bureau. For Equifax, in addition to required documentation, parents need to fill out a form online and submit it via postal mail; minors who are 16 or 17 may request their own security freeze by phone or by mail. The websites for Experian and TransUnion provide further details on their respective processes, which includes document requirements and mailing addresses. It can take a few weeks for the bureaus to process these requests.

Keep good records for unlocking later in life

Parents need to keep safe the pin number they are provided when locking their child’s credit so it can be temporarily unlocked as needed, such as when the child turns 18 and wants to apply for a credit card, said Bruce McClary, senior vice president of membership and media relations at the nonprofit National Foundation for Credit Counseling.

The unlocking process isn’t necessarily seamless and can take time. Equifax, for instance, asks for these requests in writing, with required documentation for identity verification purposes. After age 18, Equifax allows for managing the security freeze online.

Educate children early on protection of personal information

Parents should talk to their children about best practices with respect to sharing personal information, McClary said. For instance, they should caution children to be careful about the kinds of information they provide to websites and apps and to keep their Social Security number close to the vest.

Parents may also want to consider credit or identity threat monitoring services or both. Certain providers may offer basic services for free, but family plans that include adults and children and offer a combination of credit and identity theft protection tend to be fee-based. These services — which can run around $24 or more per month — may offer more comprehensive protection, including identity theft insurance and fraud resolution services. Parents should weigh the options carefully to understand the choices and associated costs.

Home equity is near a record high. Tapping it may be tricky due to high interest rates

LSD News Szerkesztőség — Tue, 11 Jun 2024 03:50:28 +0000

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Home equity is near all-time highs. But tapping it may be tough due to high interest rates, according to financial advisors.

Total home equity for U.S. mortgage holders rose to more than $17 trillion in the first quarter of 2024, just shy of the record set in the third quarter of 2023, according to new data from CoreLogic.

Average equity per borrower increased by $28,000 — to about $305,000 total — from a year earlier, according to CoreLogic. Chief Economist Selma Hepp said that’s up almost 70% from $182,000 before the Covid-19 pandemic.

About 60% of homeowners have a mortgage. Their equity equals the home’s value minus outstanding debt. Total home equity for U.S. homeowners with and without a mortgage is $34 trillion.

The jump in home equity is largely due to a runup in home prices, Hepp said.

Many people also refinanced their mortgage earlier in the pandemic when interest rates were “really, really low,” perhaps allowing them to pay down their debt faster, she said.

“For the people who owned their homes at least four or five years ago, on paper they’re feeling fat and happy,” said Lee Baker, founder, owner and president of Apex Financial Services in Atlanta.

Baker, a certified financial planner and a member of CNBC’s Advisor Council, and other financial advisors said accessing that wealth is complicated by high borrowing costs, however.

“Some options that may have been attractive two years ago are not attractive now because interest rates have increased so much,” said CFP Kamila Elliott, co-founder of Collective Wealth Partners and also a member of CNBC’s Advisor Council.

That said, there may be some instances in which it makes sense, advisors said. Here are a few options.

Home equity line of credit

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A home equity line of credit, or HELOC, is typically the most common way to tap housing wealth, Hepp said.

A HELOC lets homeowners borrow against their home equity, generally for a set term. Borrowers pay interest on the outstanding balance.

The average HELOC has a 9.2% interest rate, according to Bankrate data as of June 6. Rates are variable, meaning they can change unlike with fixed-rate debt. (Homeowners can also consider a home equity loan, which generally carries fixed rates.)

For comparison, rates on a 30-year fixed-rate mortgage are around 7%, according to Freddie Mac.

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While HELOC rates are high compared with the typical mortgage, they are much lower than credit card rates, Elliott said. Credit card holders with an account balance have an average interest rate of about 23%, according to Federal Reserve data.

Borrowers can generally tap up to 85% of their home value minus outstanding debt, according to Bank of America.

Homeowners can leverage a HELOC to pay off their outstanding high-interest credit card debt, Elliott said. However, they must have a “very targeted plan” to pay off the HELOC as soon as possible, ideally within a year or two, she added.

For the people who owned their homes at least four or five years ago, on paper they’re feeling fat and happy.

Lee Baker

certified financial planner

In other words, don’t just make the minimum monthly debt payment — which might be tempting because those minimum payments would likely be lower than those on a credit card, she said.

Similarly, homeowners who need to make home repairs or improvements can tap a HELOC instead of using a credit card, Elliott explained. There may be an added benefit for doing so: Those who itemize their taxes may be able to deduct their loan interest on their tax returns, she added.

Reverse mortgage

A reverse mortgage is a way for older Americans to tap their home equity.

Like a HELOC, a reverse mortgage is a loan against your home equity. However, borrowers don’t pay down the loan each month: The balance grows over time with accrued interest and fees.

A reverse mortgage is likely best for people who have much of their wealth tied up in their home, advisors said.

“If you were late getting the ball rolling on retirement [savings], it’s another potential source of retirement income,” Baker said.

A home equity conversion mortgage (HECM) is the most common type of reverse mortgage, according to the Consumer Financial Protection Bureau. It’s available to homeowners who are 62 and older.

A reverse mortgage is available as a lump sum, line of credit or monthly installment. It’s a non-recourse loan: If you take steps like paying property taxes and maintenance expenses, and using the home as your primary residence, you can stay in the house as long as you like.

Borrowers can generally tap up to 60% of their home equity.

The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home, according to the CFPB.

While reverse mortgages generally leave less of an inheritance for heirs, that shouldn’t necessarily be considered a financial loss for them: Absent a reverse mortgage, those heirs may have been paying out of pocket to help subsidize the borrower’s retirement income anyway, Elliott said.

Sell your home

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Historically, the biggest advantage of having home equity was amassing more money to put into a future home, Hepp said.

“That’s historically how people have been able to move up in the housing ladder,” she said.

But homeowners carrying a low fixed-rate mortgage may feel locked into their current home due to the relatively high rates that would accompany a new loan for a new house.

Moving and downsizing remains an option but “that math doesn’t really work in their favor,” Baker said.

“Not only has their home gone up in value, but so has everything else in the general vicinity,” he added. “If you’re trying to find something new, you can’t do a whole lot with it.”

Cash-out refinance

A cash-out refinance is another option, though should be considered more of a last resort, Elliott said.

“I don’t know anyone right now who’s recommending a cash-out refi,” she said.

A cash-out refi replaces your existing mortgage with a new, larger one. The borrower would pocket the difference as a lump sum.

To give a simple example: let’s say a borrower has a home worth $500,000 and an outstanding $300,000 mortgage. They might refinance for a $400,000 mortgage and receive the $100,000 difference as cash.

Of course, they’d likely be refinancing at a higher interest rate, meaning their monthly payments would likely be much higher than their existing mortgage, Elliott said.

“Really crunch the numbers,” Baker said of homeowners’ options. “Because you’re encumbering the roof over your head. And that can be a precarious situation.”