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Paying debt and hiking credit score; monitoring credit

By Lew Sichelman Oct. 20, 2005
WASHINGTON (MarketWatch) -- Issue's on people's minds: How do I pay off my debt in a way that doesn't damage my credit score and will checking my credit report help if I've inadvertently given out personal data to someone who might be an identity thief?

Q. I have a question relative to how best to pay off my outstanding credit-card balances. I have about $60,000 in outstanding balances with four providers and zero on four others, with about $125,000 in total credit. Fortunately, I am now in a position to completely pay off the outstanding balances in one fell swoop but want to know the best way to do this without negatively impacting my credit score.Is it best to pay them off immediately? Is it better to gradually pay them off, completely, over a three-to-four-month period? Or is it best to take them down to the 30% level? Or is there an even better strategy that you can suggest? I want to refinance my current, interest-only mortgage as soon as possible, but I can wait if my FICO is improved. Jim Parsons.

Answer: My credit-score guru, Ginny Ferguson of Heritage Valley Mortgage in Pleasanton, Calif., says that as long as you have the cash, "by all means" you should pay down the cards on which you are carrying balances. But don't pay them off completely. Rather, pay each one down to a balance of $100. However, if $100 is more than 30% of your available limit on any single card, then Ferguson says you should pay it off completely.

And remember, it's better to pay all your balances down to 30% or less of their limits than to transfer all your debt to one card and pay off the rest.

As long as you have no need for the other four cards, it's also a good idea to cancel them altogether. Even if you don't use a card, simply the fact that you have them can go against you because the scoring software sees them as unused credit you can rack up at a moment's notice. The software looks not only at how you use your available credit, but also how much you have.

Ferguson, who teaches other mortgage brokers how to help their customers get the best scores possible, also wants me to tell you that it can take as long as 60 days for your new, lower balances to show up in all three credit-reporting agencies, depending on when those balances are reported. So the sooner you act, the sooner you will be able to obtain a higher score.

Q. What month can Californians get a free credit report from all three of the major credit-reporting agencies? What is the Web site? Elaine Sanders.

A: Where have you been, Elaine? Denizens of the West Coast were the first in the country who were able to obtain a free credit report once a year from Experian, Trans-Union and Equifax. And now, nearly a year later, everybody can do so no matter where they reside.

But Ferguson advises to pull only one report at a time. If you spread them out over a year's time, she explains, you can more easily monitor your file for fraudulent activity.

By the way, the California broker "never" recommends paying for a credit score from a Web site because you "could be getting a generalized/educational score" that is not produced by Fair Isaac & Co. Fair Isaac created a scoring model exclusively for the mortgage industry, and that's the one you want. Anything else could give you a score that's 30-35 points lower than the one a lender might obtain.

The Web sites you want are:, and Also try And you can pull your own score from

Q. I inadvertently released some personal information over the phone to an unknown person. Had I had my wits about me, I would have been more careful. Now, identity theft comes to mind and I am concerned my credit could be jeopardized. Would checking my credit report or credit score alert me to that? I have never checked either, although I'm quite sure my credit score should be high. I have always paid my bills on time and have little debt. How do I check them and what should I be looking for? Don Baltes.

A: Check your credit reports right away, on the Web sites suggested, and keep checking until you feel comfortable no damage has been done. Also consider "flagging" your files with a warning to potential new creditors to take every precaution possible to verify the identity of the person apply for credit in your name.

Q. If two unmarried people are on title and have lived in their primary residence for two out of the last five years and file separately, does this qualify each to receive a $250,000 exclusion under current tax law? Tim.

A: Yes. Taxpayers filing separately are allowed to share the $500,000 capital gains exemption afforded taxpayers filing jointly, up to no more than $250,000 each.



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