Smart About Money: Understanding Your Credit

By Nick Maffeo

A colleague recently asked me if I thought it would be okay if she cancelled a credit card she never uses. She’d heard cancelling a credit card could hurt a person’s credit score with the credit bureaus. She wondered if that was the case.

I had to tell her the truth: I don’t know if canceling a card would hurt her credit score. I have also heard it could. Some suggest that’s a “story” put out there so people will be reluctant to cancel credit cards. Is that true, or just an urban myth? Who knows.

Nick Maffeo

The fact is that the credit bureaus seem to have developed a business model that uses consumers’ information without their permission. Their algorithms and systems are proprietary, even secret.

While they are governed by the Federal Trade Commission and there are consumer protections in place, the faceless credit bureaus do seem to know “all about” individuals without those people knowing much about them, how they work or how to keep from being hurt by the credit reports the credit bureaus compile.

According to an article about “Understanding Your Credit” from the Federal Trade Commission, “When people talk about your credit, they mean your credit history. Your credit history describes how you use money. For example, how many credit cards do you have? How many loans do you have? Do you pay your bills on time, or are you late on payments?”

The FTC article goes on to say, “How you’ve handled your money and bills in the past helps lenders decide if they want to do business with you. Your credit history also helps them determine what interest rate to charge.”

A higher score indicates that a person pays their bills on time and they are not overextended on credit or loans. A lower score usually indicates that a person is having some trouble paying their bills — possibly because they are overextended.

That’s obviously something a company or entity thinking of doing business with you wants to know and needs to know. According to the Fair Credit Reporting Act, that includes credit card companies, lenders, auto loan providers, employers, landlords, insurance companies, utility providers and some government agencies. Your written permission may be required for them to see your credit report but usually that’s a formality since giving that permission is often part of an application.

Sometimes people say, “But wait a minute! Those credit bureaus are using my information without my permission!”

Regarding the information about individuals that the credit bureaus compile, actually they are getting permission directly from the owners of that information — specifically, from the companies people do business with.

It might be worded as giving your permission for “data collection and analysis” or something along those lines. But chances are basically 100 percent that somewhere in any credit-related application small-type/legalese, you are agreeing to allow “snapshot” reporting on that financial relationship to the credit bureaus.

Paying bills on time is a large part of having a solid credit score. If you are having trouble with that — and many people do at various times in their lives — you may want to talk with people who may be able to help. That could include trusted family or friends, a legitimate non-profit credit counseling service or you could even speak directly to your creditors.

The good news is that it’s usually possible to improve your credit score over some reasonable period of time. It’s definitely an effort worth making.

Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton Have a question? Email to submissions@thecantoncitizen.com.

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