Credit FAQs

I have money owing on more than one credit card, and/or outstanding dues to auto or student loans. Which should I accord first priority in paying off, and why?

These two are two different kinds of debt – one is secured and the other, unsecured. Secured debts are those that are backed by assets like your car, house or other tangible assets. Auto, house and certain personal loans are classified as secured loans, while those that do not have any securities are treated as unsecure debts.

Whatever was due from me towards the credit cards have been paid off. I’ve decided not to use the cards again. What should I do with them, keep or cancel?

There are two divergent opinions on this question. Some feel that canceling unused accounts spoils your credit score, as it decreases your overall access to credit, which is one of the factors used in arriving at your score. Nil balance or low balance open accounts point to someone who is financially responsible enough to have credit but not use it too flippantly.

The other view is that too many open accounts are risky. You may become targets of identity thieves, who can get access to your forgotten accounts and start making charges in them. The best option is to retain credit cards; keeping minimum or nil balance and cancel accounts like store credit cards or gas cards.

How many free credit reports am I entitled to, in a year? Some say it is only one, but some say it’s three?

Both. That is one free credit report each from the three major bureaus--Equifax, Experian, and Trans Union. The best option is to order a report from Equifax, one from Experian, and one from Trans Union in a staggered manner, to get one every four months. This way, you can track the progress you've made in paying off loans and also check the changes if any in your credit status

The only genuine place to order your free credit reports is from the Web site, calling 877-322-8228, or filling out the Annual Credit Report Request Form and mailing it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

There are other sites which may advertise "free" credit reports, but better be careful. They may also trap you into paying for credit monitoring services you don't really need.

I get many credit offers regularly. I rarely respond to them. Will opting out negatively affect my credit score?

"Opting out" helps to minimize crowding of your mailbox by prescreened offers for credit. These offers are from banks, creditors and companies that conduct inquiries into consumers' credit on an ongoing basis. Inquiries from your side for credit are treated as “hard" inquiries. If you make a number of hard inquiries in short span of time it may spoil your credit score. But prescreened offers are "soft" inquiries and opting out of receiving them does not generally impact your credit score.

Many lenders often storm customers with hordes of inquiries in too short a time. Most of it invariably reach the wastebasket, increasing your vulnerability to identity theft, as no dump is left unscreened by crooks to get access to information. If they succeed in opening up your credit accounts using information from unwanted credit solicitations it will hurt. Hence restricting credit inquiries to the ones you make yourself is the ideal strategy.

To opt out of unsolicited offers, visit or call 1-888-567-8688.

My credit limit was reduced by the bank for no reason and they also charged me a late fee, even though I paid my balance on time. Can they do that?

It’s strange, but it can be done. As per the credit card agreement that appears in small fine print, bank can at anytime and without any previous notification change the "terms and conditions".

Credit card agreements are infamous for being written in such impenetrable and complex terms and they are often at the receiving end of criticism for abusive credit card practices. Changing credit limits, increasing interest rates, levying almost any kind of fees, these agreements can be used to justify many arbitrary practices.

Consumer activists are seeking greater transparency in credit card agreements and in fixing fees. They are demanding greater clarity and the specific detailing of the terms and conditions so that you will get an idea of what you are really getting into.

The interest rate and penal fees on my credit cards are so high and is even growing alarmingly beyond my capacity. How can I decrease them?

In some states, lending norms are very liberal (eg: Delaware, South Dakota). The lenders based in such states charge crippling interest rates on credit cards. Even modest amounts will inevitably become huge burdens, if interest is charged at 29 or 30 percent.

However, there are ways to lessen the burden to a certain extent.

There is cut throat competition among lenders for new customers. This can be used to your advantage. The introductory offers are bound to be low. Start negotiation with more than one lender and transfer the balance in the card to the lesser interest charging bank. This will help you pay off your debt faster as the interest load will be comparatively lesser.

But be on your toes- once the honeymoon period is over, the rates are likely to shoot up in the new regime too. So make sure that you do your research thoroughly and ensure that you get the best deal.

You can also do a kind of bargaining with the existing banker by warning that you're considering transferring your card balance to another card. They are quite likely to offer you a lower interest rate or waive penalty or late fees.

But this experiment can result in different experiences depending on the banks and their policies as well as on the mind-set of the customer relations executive you're dealing with.

However, what really matters in the final count is the income you have and the credit history. If you have had a long and hassle free association with the company as a customer, they're more likely to be flexible with you. But if you've been with them for only a short period and if there have already been defaults or late payments, you cannot expect the lender to be lenient with the interest rate.