Weekly Financial Question

Get Out of Debt ... Advice from Myvesta.org By Steve Rhode and Mike Kidwell

Q: I am working on improving my credit report. Some entries are old credit lines I signed up for years ago, but haven't used in ages. Should I close them? Or should I not worry about them as long as I don't use them?

A: Logically, it would make sense to close those accounts. Doing so can help your credit rating by reducing your total amount of available credit, and it could protect you from fraud if new cards were sent to you and someone else got hold of them. But there is a downside. If you close too many accounts too quickly, you may actually hurt your credit score. Why? Fair, Isaac Company is the creator of the popular FICO credit score that is used to evaluate many types of credit applications. With a FICO score, two of the factors looked at are how old your oldest account is, and the average age of all your accounts (older is generally better, since it shows a longer track record). Closing out accounts, especially your oldest one, could sell you short on that factor. Also, lenders look at your overall mix of credit. If you close out most of your accounts, you may get a lower score for having fewer open credit references. In the long run, whether or not you close all those accounts is probably not a big deal, since the most important factor influencing your credit is whether or not you pay your bills on time. So, our advice is that you selectively close out old accounts, don't close out more than one or two every month and avoid closing your oldest account.

Q: At age 14, my son joined a record club without our knowledge. Since he could not afford to keep up ordering the minimum, we are getting letters from a collection agency saying he owes them money. It has been three years now since he joined. He also has the same name as me. What are our obligations?

A: One of the major music club companies told us that it will cancel a membership and likely stop collections if a parent notifies them that their underage child had enrolled in the program. In addition, your son probably has the law on his side. Since he's a minor, the contract is probably not enforceable. A letter from your son to the collection company stating that he was a minor when he joined, asking the collection company to stop contacting him and asking for an acknowledgement from the collection company that it will not pursue future collections should do the trick. But we don't think your son should get off the hook that easily. He needs to learn that credit obligations are serious. If he pulls this stunt after he's 18, he'll pay a steep price with ruined credit. You may want to insist that he contact the record company and offer to return the music he received. Since he didn't pay for it, he shouldn't feel entitled to keep it. The other alternative would be to have him earn the money he owes through a part-time job or allowance and pay the company back. As for you, check your credit report to make sure the collection account isn't misreported on your record. You can get a consolidated report showing the records at all three major credit reporting bureaus from Myvesta.org.