What not to believeJames Bollengiercredit reporting, credit score, credit history, fraud prevention Type the words "credit reporting" into the Google search engine and you will receive 38,700,000 hits covering an array of organizations from governmental bodies to small, privately held fraud-prevention corporations. With all of that information available, how can an individual consumer know what to believe and what to dismiss? This question is more complicated to answer than you may think. Advice on what to do and what not to do is subjectivebased upon the industry you are dealing with as well as the individual's goal. For example, one person may advise you not to apply for any new accounts if you want your score to increase, which is good advice for most Americans. However, if you don't have any active credit cards on your report, opening a couple of lines of credit and keeping them at a zero balance is most likely going to raise your score. Likewise, if there is no score due to having no history for the past six months or more, getting new cards would establish a score for you. Another Web site advises that having $100,000 in your savings account can help your credit. Although, when applying for mortgages, auto loans or other major purchases, they may ask for such information and consider it in determining your desirability as a borrower. In general, checking and savings account information will have no impact on your credit score whatsoever, since that information is not reported to any of the major repositories that are used to calculate scores. Likewise, the vast majority of utility companies and apartment complexes do not report payment history, so making those payments in a timely fashion will not help nor hinder your credit standing. Another major discrepancy that arises is the amount of the limit on a credit card that is acceptable to use. This, of course, has a fairly complex answer. Many experts will tell you that as long as you pay off your balance in full every month, the balance to limit ratio will never be a detriment to your credit score. That is good advice, but not always accurate. Most of the major credit card issuers report an account history on their card holders to the bureaus on a monthly basis. Depending on the schedules of payments and reporting, the following scenario could arise: John has a credit card with a $30,000 limit. His only other account is a $1,000 limit card that he rarely uses. Every month, John uses his large card to charge supplies for his sole proprietorship. Typically, these charges total around $29,000-$30,000. At the end of each month, when the bill comes in, John pays the card off in full. Unfortunately, the company reports to the bureaus on the 20th of each month when the balance has not yet been paid. Therefore, even though John diligently pays off his bill every single month, his report always appears as though he is using 95 percent of his available credit. That could cost John as many points on his credit score as a charge-off or collection account. Now, the individual credit card company may see John's persistence as ample evidence to increase his limit or issue an additional account, but other banks will not be privy to that information, so John will possibly be declined, despite his pristine payment history. Another complicated issue that is difficult to define with an always-right answer is the impact of inquiries on a credit score. There are Web sites that claim that inquiries account for 10 percent of the score, that only one per month counts, that they cost two points each, or that you don't have to worry about them because they are not significant. Although each of these axioms has a kernel of truth in it, none of them are completely accurate all the time. The impact of inquiries on the score can be more severe than most people know. One individual who subscribed to a monthly credit scoring service, sponsored by one of the major credit bureaus, noticed that, on the score simulator, he could move his score between 720 and 680 simply by manipulating the theoretical number of inquires from zero to 12. A 40 point deficit could easily cost an individual two percentage points on a mortgage--which could cost tens of thousands of dollars over the life of a loan. So what does this mean to the average consumer? The bottom line is that everyone has a unique situation that will not be easily defined by every rule that comes along. Especially for more complex problems, it is often the best advice to consult with a financial counselor who understands the ins and outs of the industry and can recommend a specialized course of action that conforms to individual needs. James Bollengier is director of client services for RMCN Credit Services Inc. He can be reached at (888) 469-7372, ext. 253 or e-mail [email protected].