Credit question

[birdie]

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I have a couple of open accounts on my credit report that I don't use at all. However, it says that these are in good standing. Is this helping my credit score or hurting it? Would I be better off just closing it? I'm thinking that since it's more accounts in good standing, that would be helping my score....no? 😕

 

[DesiInNyc]

i've read that closing acct's (like visa, mastercard, etc.) will hurt your score. but in my case, i had just so many credit cards that were of no use. it was hard to keep track of them all, i was loosing sleep over them. so i closed a whole bunch. maybe it was rash, but i just feel safer now.

 

[tkim]

Originally posted by birdie
I have a couple of open accounts on my credit report that I don't use at all. However, it says that these are in good standing. Is this helping my credit score or hurting it? Would I be better off just closing it? I'm thinking that since it's more accounts in good standing, that would be helping my score....no? 😕

In a word - no.

The more *closed* accounts you have that were in good standing when you closed them is better than having multiple open accounts in good standing.

The amount of credit available to you via open accounts will negatively impact your credit score.

The best thing to do in anticipation of entering medical school - and applying for private student loans is to 1) pay off any existing balances on the credit cards you have, 2) once you have paid them off, close all but *one* credit card account, 3) put that single credit card in your sock drawer and never use it.

http://www.sfs.uic.edu/slmnewsletters/slm.htm

- Tae

 

[mpp]

Not only is it a good idea to close accounts that you are not using for safety's sake, but if you have too many open accounts it can hurt you when applying for large loans such as a mortgage. Even if there is a zero balance on these accounts, the idea that you could max all those out at any time can make the mortgage broker wary that you might over-extend yourself. Only keep accounts that you are using open...There usually isn't any reason to have more than one or two credit cards, a car loan, a mortgage, and student loans active at any time. Plus, it will help you ensure you don't accidentally overspend...something that is all to easy to do.

 

[Aaargh]

I am sorry but the information above is totally 100% incorrect.

FICO scoring is based on a number of factors. The % of revolving credit being used/available is one of them. You close a line you increase/decrease this number. The average age of OPEN revolving lines is another. You close a line you usually reduce this. You also hurt your future score because you eliminate an account which would have aged in the future. Paid INSTALLMENT lines (actually just one seems to be magic) play a big role in boosting FICO scoring. PAID REVOLVING lines, however, play close to no role. And after 2 years by almost all accounts (FICO and the various private lender proprietary scoring algorithms are not public and most of the information is reverse engineered) play essentially no role/are ignored.

Having old open good standing revolving lines with little to no balance is a significant boost to credit scores. Closing lines to boost a credit score is almost always counterproductive.

As for mortgages, they are almost completely score driven because that's how they are sold in the public markets.

 

[mpp]

PAID REVOLVING lines, however, play close to no role. And after 2 years...play essentially no role/are ignored.

Having old open good standing revolving lines with little to no balance is a significant boost to credit scores.

Aaargh, I am confused about your statement (it seems contradictory), so correct me if I'm wrong.

I was under the impression that paid revolving credit lines with no balance really do nothing for your FICO...with a small balance they can help. Long term installment loans are the key to a good FICO. So why have the extra zero balance credit cards out there? Closing them shouldn't change the FICO. Not having the cards will prevent possible impulse spending and over-extending yourself. Without the cards there also can't be a mistake in not recording a payment or a false late-payment. I'm no expert in this area so perhaps I'm wrong; let me know what you think.

 

[Aaargh]

Originally posted by mpp
Aaargh, I am confused about your statement (it seems contradictory), so correct me if I'm wrong.

I was under the impression that paid revolving credit lines with no balance really do nothing for your FICO...with a small balance they can help. Long term installment loans are the key to a good FICO. So why have the extra zero balance credit cards out there? Closing them shouldn't change the FICO. Not having the cards will prevent possible impulse spending and over-extending yourself. Without the cards there also can't be a mistake in not recording a payment or a false late-payment. I'm no expert in this area so perhaps I'm wrong; let me know what you think.

The highest FICO boost you will get will be to put a $1 balance on the card. You can, of course, charge that $1 on the card five years from now. At which point within 30 days it will report and your score will be boosted with an aged revolving line. There doesn't seem to be a need to carry the balance.

A zero balance will still increase your overall available credit. It will also increase the average age of your open revolving accounts. Both of these will improve FICO's. It can be especially important if you carry any balances. Charging up one month, paying it all off, and charging up the next month is the same as carrying a balance for these purposes.


As to whether you can have too many open accounts assuming you have zero in balances (or <1% available credit being used), that is a matter of debate and will also vary according to the score being used (ie, a Beacon which seems to have an insatiable appetite for open accounts even with zero balances vs some of the bank's prop scores which may not).

As to plastic and self-restraint, that is not a FICO or Aaargh! question.

Finally, as to late pays, there are outstanding and cheap bill paying services out there which you should use if you think there is any whiff of a possibility of sending in a late payment. Most folks think a 30 day late is no big deal. And it isn't. Except to FICO -- that single late payment immediately turns your revolving line in a negative, a hurt for 7 years rather than a help. Pay the electricity late, not first usa.