closing credit cards and FICA score

[soswank]

I have a few credit cards that I do use, they each have a few thousand dollar limit on them. What is the best for my score, keep my account open with zero balance on all of them, or close them?

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[Doctor Bagel]

I've heard that closing accounts actually lowers your score, so I'm keeping all mine open for now. Also, there's something about your first credit establishing account as being important. If anybody has any more detailed information, I'd love to hear the answer to this one, too!

 

[heech]

You're exactly right, exlawgrrl. Having open credit that you do not use is never a bad thing from a credit point of view. In contrast, having a long credit history (and numerous credit lines) is a huge positive.

Just fight the temptation to use these credit cards; store'em in your sock drawer if you have to. Your credit will thank you later.

 

[Khenon]

You're exactly right, exlawgrrl. Having open credit that you do not use is never a bad thing from a credit point of view. In contrast, having a long credit history (and numerous credit lines) is a huge positive.

Just wanted to confirm this as well. Long credit history (even if the cards have no balance on them) is better then closing the account. If you truly have too many lines of credit (eg several department store cards, visas, mastercards, lines of credit for a computer or TV, etc.) it could be helpful to close a few of the MOST RECENTLY opened ones. It does hurt your credit score to have alot of revolving credit lines (even if they're paid off) because it means you have the potential to get yourself into severe debt. But if we're just talking a few credit cards, then just pay them off and keep them open.

 

[mshheaddoc]

Oh and by the way if you have tons of credit cards and don't use them, that can hurt you. You need to show that you can "use" revolving debt wisely. So if you paid them off every month its a lot different then never using them.

But if you don't like the credit availalbililty I know people who have called and asked that the amount be lowered because they didin't want their card to be stolen and have $50000 in purchases to deal with. But if they are $2K cards or such just keep them for now as you might need them later. Pay them off each month. Works wonders.

 

[Sol Rosenberg]

Oh and by the way if you have tons of credit cards and don't use them, that can hurt you. You need to show that you can "use" revolving debt wisely. So if you paid them off every month its a lot different then never using them.

I don't know if this is necessarily true anymore. When I graduated from college, I started building up lots of credit -- I had lots of cards that I never used. My parents and in-laws said "All that credit will hurt you when you go to get a mortgage," but that never happened. I always qualified for the best rates, etc. While my credit score wasn't perfect (650+) it was plenty good. The most common reasons I didn't have a "perfect score " (700+) were because "Amount of revolving balances" (I charge EVERYTHING, and then payoff the balance each month,) and "Number of inquiries made in the past 18 months."

On the other hand, the average amount of time that your accounts are open IS factored into your credit score, so like a previous poster said, it CAN hurt your score to close accounts quickly. Just leave the CCs open, put them away, and save them for a rainy day that will hopefully never come.

Jota

 

[mshheaddoc]

Figuring out your credit score will help you. You charge everything then pay off will work for one car, not for all of them. And while yes 650+ is a good score, I'm talking for excellent credit and the good rates you need 700 +. Credit is such a finicky subject especially be there are 3 major different bureaus who report things different as well has have their own credit score as well as do NOT talk to each other.

What I have stated is true as well as what jota-jota stated was true. Its all about how you use it. But my point is this, if you DON'T use and just have it. It is NOT credit by more major financial companies. They look for active lines at least 12-24 months open. Some lenders will require that for certain forms of credit. I was in personal and commercial banking and this came into factor for the loans I gave and even the loans I needed personally.

Oh and student loans aren't credit either. Unless you have paid some of them off

 

[kate_g]

I got two relevant pieces of info about credit score from a mortgage broker when we were considering buying a house:

1. The score looks at the total amount of available credit you have - i.e. the sum of the limits on all of your accounts - vs. the total balances on those cards. So having open and unused accounts can actually be helpful. We were specifically advised *not* to close any unused accounts while applying for a mortgage.

2. Credit reports only look at the instantaneous moment when they were generated, and reports to credit agencies are *not* synchronized to your billing cycle. Like jota, we charge everything and pay the entire balance each month. So practically speaking we really have no credit card debt, but if the credit agency pulls info just before a bill is due it will look like we've got a large balance (in the above-mentioned mortgage case, that month's bill had airline tickets and hotel for a week's vacation in addition to regular expenses, so it looked like we had $3K of debt on a $10K card). The advice we got for this particular situation takes some discipline but it's really good - *if* you're going to charge a lot, then instead of sending in one check when the bill arrives, make payments two or three times a month to keep the outstanding balance low. Do this for several months before you expect to need your credit report pulled, for optimal effect.

 

[soswank]

Thank you for all the replies and discussion. I called yesterday and closed about 5 credit card accounts i had. I still have a few on hand, will keep them to improve my credit score.

 

[Sol Rosenberg]

The advice we got for this particular situation takes some discipline but it's really good - *if* you're going to charge a lot, then instead of sending in one check when the bill arrives, make payments two or three times a month to keep the outstanding balance low. Do this for several months before you expect to need your credit report pulled, for optimal effect.

Hey, thanks for that advice! I never thought of doing that, but it totally makes sense!.

Jota

 

[mshheaddoc]

I got two relevant pieces of info about credit score from a mortgage broker when we were considering buying a house:

1. The score looks at the total amount of available credit you have - i.e. the sum of the limits on all of your accounts - vs. the total balances on those cards. So having open and unused accounts can actually be helpful. We were specifically advised *not* to close any unused accounts while applying for a mortgage.

2. Credit reports only look at the instantaneous moment when they were generated, and reports to credit agencies are *not* synchronized to your billing cycle. Like jota, we charge everything and pay the entire balance each month. So practically speaking we really have no credit card debt, but if the credit agency pulls info just before a bill is due it will look like we've got a large balance (in the above-mentioned mortgage case, that month's bill had airline tickets and hotel for a week's vacation in addition to regular expenses, so it looked like we had $3K of debt on a $10K card). The advice we got for this particular situation takes some discipline but it's really good - *if* you're going to charge a lot, then instead of sending in one check when the bill arrives, make payments two or three times a month to keep the outstanding balance low. Do this for several months before you expect to need your credit report pulled, for optimal effect.

Great advice. Credit reports are updated the 15th of every month regardless when your billing cycle is. Remember this if you are 30 days past due - this is the critical date if you are 30 days+ late because now it will be reported as a deliquent account. If you catch it before hand you might be able to talk them out of it.

Another option you have is when your credit report comes back with the mortgage company you can dispute certain accounts which then the company can send for what is called a credit supplement for your file. Although most will not send for full a credit report until your report expires (90-120 days) if there are enough accounts that are reported paid they will take that into consideration. BUT MAKE SURE that it isn't a HUGE amount of credit that you pay off right before you apply (like a month or two) because if it isn't updated they might ask you to show where you got the money from and why you aren't using it for the downpayment. I know it sounds stupid but they are just assessing the risk of the credit.

Pay everything off and check your credit at least 6-8 mos BEFORE you are going to apply for a mortgage. That way you can clean it up and make sure everything is squared away.

 

[newbie04]

The score looks at the total amount of available credit you have - i.e. the sum of the limits on all of your accounts - vs. the total balances on those cards. So having open and unused accounts can actually be helpful. We were specifically advised *not* to close any unused accounts while applying for a mortgage.

My wife and I just bought a house and we were told the opposite concerning open, unused accounts. We closed 5 or 6 cards a couple months before buying our house and our credit scores went up into the 800s and upper 700s, which helped us qualify for the lowest interest rate possible at the time of closing.

Pay everything off and check your credit at least 6-8 mos BEFORE you are going to apply for a mortgage. That way you can clean it up and make sure everything is squared away.

This is great advice, as there is an inherent delay when it comes to reporting and the "Big 3" credit agencies.

 

[kate_g]

My wife and I just bought a house and we were told the opposite concerning open, unused accounts.

Weird. I wonder if the three credit reporting agencies treat unused credit differently or something. Yours sounds like a pretty convincing empirical test, though - it could be this broker was just plain wrong on that count.

 

[kate_g]

Hey, thanks for that advice! I never thought of doing that, but it totally makes sense!

You're welcome.

By the way for anyone trying to pay off a balance... Your credit card almost certainly charges higher interest than you get paid by your bank. So that same strategy (making, say, 1/2 your expected payment halfway through the month) could lower your interest cost substantially. The credit card company bills you monthly, but they charge interest every single day. If you pay half your bill two weeks early, you save two weeks' interest on that amount. Similarly, if you get birthday money, or a bonus at work, or whatever, and want to use it to pay down your credit balance, make the payment as soon as the bonus hits your bank account rather than waiting until your next bill. You'll essentially be increasing your bonus by not having to pay the interest.