Credit Help

[sunnyd]

I need some help in the credit department if anyone is interested. I''m trying to reduce the amount of open credit to my name. I have a couple of cards from large furniture and appliance purchases that are now hovering as $1000s in available credit, which I know is not good for your score. But if I close the accounts, will that lower my score? My poor credit has already taken some pretty good hits in the last couple of months (unavoidable inquiries - for apartment, then car loan) so I don''t want to send it tanking in the *hope* that it will soon recover.

What can I do to make my score better? Credit baffles me... Thanks for any help!

 

[scarleta]

Sunnyd:I don''t know anything about your USA scoring system, but I can tell you this for sure.Any lending institution loves you to loan money from them and of course they much prefer you pay in installments ( more money for them) So the more often you borrow little money and pay it back in full each time.That way you are earning their trust for future loans and credit score also.You want to take a loan and pay it in full.Its good idea to keep them open if you are able to manage them properly and never pay penalty.You want them to say yes she can borrow and pay it off no problem.One day you may need to borrow money so its a good idea to keep it active.
I learned the hard way and when I got my first cc I used it too much and could only pay the minimum each month.I had to destroy the cards because I could not manage them properly.Of course when the cards expired they would send me a new one.It took me few years to start thinking that this plastic was real money.I am able to use them properly now so no problem..
Its easier than you think just don''t buy anything you can''t pay for in full in due time.Better to take a loan and pay them all of you may get better interest on that..

 

[Selkie]

You said you are trying to reduce the amount of open credit to your name, but do you mean you are trying to raise your score? I've been working on improving my credit over the past 5 years, so have read a lot about the best ways to do it. There are no quick ways to get a better score, just gradual improvements over time. Paying down debt and paying on time are THE most crucial factors.

DO NOT close your paid off cards (not all at once, anyway) it will just increase your ratio of debt to credit. Having open credit is not necessarily a bad thing IF your cards are paid off.

Have you checked your score recently? You can get one free credit report a year from each of the three main companies.

Inquiries only impact your score if they result in a new loan. So your apartment credit check most likely had no effect but your car loan did. Not much you can do about that, but I've read that inquiries only determine 10% of your score.

Hope this helps!

ETA: Here's a good summary of what affects your score and how to improve it.
Improving your FICO credit score

 

[sunnyd]

They are paid off. Zero balances, and I will probably not use them again.

 

[Selkie]

Are they Store credit cards (ie not VISA, MC, etc.) with relatively low limits? If so, closing them gradually (one every few months) will reduce the number of accounts you have (a good thing) without impacting your total credit too much and bringing down your score.

 

[Allison D.]

Sunny, what you should do from here really depends on what your total ''portfolio'' looks like.

Credit scores consider several things including the following:

Total debt to income ratio - what you make annually vs. what your existing debt load is

How many lines of credit you have open - they want you to have a few, but not an unwieldy amount - if you
only make $40K a year and you have $40K in available credit, that would make you a greater credit risk than
if you made $140K a year and had $40K in available credit.

What percentage of your available credit line is in use: In general, it''s better to have several credit sources with
balances that amount to 30-40% of less of available credit.....(so no more than $3k-4K balance on a $10K
credit limit). However, several credit sources hurts the borrower with a $25K income, where it helps the
borrower with a $100+ income.

When you close accounts, you want to pay attention to which are your oldest lines of credit - you don''t want to close an old Mastercard, for example, if it was one of your first lines of credit. Older credit histories can be more valuable to you than newer lines. As such, if you''ve had a specific Visa card for 5 years, but you opened a 0% card last year to finance something, close the newer car

What can you do to better your score? Make sure your payments are done on time, work at paying down your debt to total income to improve debt-to-income ratio, and try to keep things "quiet" for a while in terms of inquiries. Those things will help most.

 

[kcoursolle]

Having one or two cards is better for your credit than having multiple cards. It would probably best to consolidate all of them on the lowest possible interest card you can find and get aggressive about paying it off.

 

[sunnyd]

Date: 3/31/2008 3:18:40 PM
Author: Selkie
You said you are trying to reduce the amount of open credit to your name, but do you mean you are trying to raise your score? I''ve been working on improving my credit over the past 5 years, so have read a lot about the best ways to do it. There are no quick ways to get a better score, just gradual improvements over time. Paying down debt and paying on time are THE most crucial factors.

DO NOT close your paid off cards (not all at once, anyway) it will just increase your ratio of debt to credit. Having open credit is not necessarily a bad thing IF your cards are paid off.

Have you checked your score recently? You can get one free credit report a year from each of the three main companies.

Inquiries only impact your score if they result in a new loan. So your apartment credit check most likely had no effect but your car loan did. Not much you can do about that, but I''ve read that inquiries only determine 10% of your score.

Hope this helps!

See, this is why I hate credit!! I thought that having more open credit means that you''re more of a risk = lower score. But then if your balances are high on other cards, lower score.

Arg.

I checked my score right before the apartment people did (like a couple of weeks before

) and my score had dropped, so I thought it was because of that. But maybe not? I didn''t know that about inquiries.

So if the cards are just sitting there, it''s not necessarily a bad thing. I might close one of them, only because my ex was making the payments on it and has the account info...not like he would do anything bad with it, but, y''know.

 

[sunnyd]

They both were retail cards (new house stuff) opened around the same time. Together they have about $4k in credit! I''ll close one then another in a few months I think.

Thanks for the link selkie, and for the tips scarleta, alj and kcoursolle!

 

[Selkie]

Yes, it can be frustrating!

And your score will show small fluctuations over time. That link I posted above has a lot of good info on how credit works and why scores go down. It''s all a balancing act, in a way.

As for inquiries, I worded it a little poorly. Any inquiry you request for a loan product could affect your credit (but the apartment inquiry should not have affected it.)
From the fico site:
"Inquiries that count toward your FICO score:
There is only one type of credit inquiry that counts toward your FICO score. When you apply for a mortgage, auto loan or other credit, you authorize the lender to request a copy of your credit report. These types of inquiries, prompted by your own actions, appear on your credit report and are included in your FICO score."

Also, inquiries won''t affect your credit for at least one month after they have occurred.

These are the things that will affect your score, and the approximate effect they have:
Payment history = 35%
Amounts owed = 30%
Length of credit history = 15%
New credit = 10%
Types of credit in use = 10%

 

[lauralu]

By all means............close the one your ex has access to. You just never know!!! If you don''t plan on any major purchases or anything big in the next 6 months. Go ahead and close the cards you know you will never use again. You will have plenty of time to regain back those lost credit score points by paying what you have on time and lowering your debt ratio even further.

Keep in mind though, a person with a number of cards with no more than 30% of the total credit available used. Will have a better score than someone having only a couple cards with higher balances on each of them.

It is no longer the more cards you have the lower your score is. it is more about the balances on all those cards and how you pay and total available credit used.

Also the advice about the older credit cards being better! YES that is sooooooooooo correct. The older credit cards with good standing payment histories on them will give you a better score than newer cards that you pay on time.

Good luck..........it takes time. There are so many little turns of life now days that can get good people into credit card trouble.

 

[Hera]

A great source of information is a forum I belong to called creditboards that''s just like Pricescope but for credit. Here''s the link:

http://creditboards.com/forums/index.php?showforum=2

Good luck!

 

[ljmorgan]

The open cards shouldn''t hurt you. I know people who do "App-O-Rama''s" which is where you apply for like 30 credit cards at a time to get all of the bonuses, miles, etc. People''s scores drop 50-100 points initially, go back back up to where they were a few months later and stay that way, even with 15-30 new credit accounts.

My husband and I have 10+ accounts we opened for various bonuses, etc and have hundred of thousands in credit card lines available, and we both have fico scores over 800.

If you want to close them anyway, just close them gradually, and if they''re small store cards it shouldn''t matter at all. Just be careful closing your oldest cards, as that can have a bigger impact. Good luck!

 

[sunnyd]

Thanks for the advice all! After adding up everything - debt/credit ratio, I''ve decided to keep both of the cards open until I can get everything else down. They''re helping me I think by having 0%! I''m right where I should be overall, but some of my balances are just too high to justify closing them. Plus they have been open for 3 years and paid off early. Since I''m only 23 and still in the ''building credit'' phase, it makes more sense to me to keep them as proof of my responsibility!

 

[Selkie]

Good for you for being so on top of this at your age. I''m 12 years older, and have only really paid attention to my credit for 5 or 6 years. Of course, I was a starving grad student prior to that, so debt was pretty much a way of life. But this will definitely make it much easier for you down the line when you buy a house or what have you.

 

[KCCutie]

Date: 4/1/2008 5:10:04 PM
Author: sunnyd
Thanks for the advice all! After adding up everything - debt/credit ratio, I''ve decided to keep both of the cards open until I can get everything else down. They''re helping me I think by having 0%! I''m right where I should be overall, but some of my balances are just too high to justify closing them. Plus they have been open for 3 years and paid off early. Since I''m only 23 and still in the ''building credit'' phase, it makes more sense to me to keep them as proof of my responsibility!

sunnyd- Well there''s a lot of the problem right there if you''re only 23 you can only have 5 years of history at the most. Time is your biggest ally there so I wouldn''t close any accounts b/c as they age they up the average age of your accounts. Also NEVER close and account with a balance if you don''t have to b/c what happens is the available credit becomes $0 and the balance becomes $xxx which makes your utilization on that card way over 100%.

I second heraanderson''s suggestion of Creditboards.com. I love that place! Since last summer I have raised my score over 50 points and my SO''s over 65 points. You should jump on over there and read up on the snowball method of paying down your debt. Also check out what they call "bumpage" or "b*" for help with all those extra inquiries.