Credit Card Questions...

[gmoney]

1) While I managed to pay off all my credit cards this year (yay me!) I still HAVE a bunch of open accounts. (Over the years, I did a fair amount of balance transfer to the 2.9% for the life of the balance stuff, etc.) So seriously, between my personal and business, I probably have 15 VISA/Mastercards and one Discover.

Part of me wants to cancel the ones I won't be using anymore, but another part of me likes the "available credit" for a rainy day. And I'm thinking that having a lot of available, unused headroom on my cards can only help my credit rating. (I think my rating is probably a B+ or A-) Someone did say that having long-established credit card accounts looks good, too.

So, do I keep 'em all and just put them in a safe deposit box for a rainy day? Cancel a few? Mix 'em up?

2) While I did get the cards paid down, I do still have a substantial "home equity line" that will come due in about a year. I'm going to try to get that paid off, but not sure if I'll be able to. My options are:

A) to re-finance (when it comes due) it for another 5 years, and hope that I actually DO have enough equity left in my house at that point.
B) attempt to refinance NOW as "home equity line" while rates are very low, possibly thru my credit union, if my home's value hasn't dropped too far.
C) use "balance transfer" checks from a couple of the credit cards to pay it off and shifting the debt to "unsecured credit" -- if the shit hits the fan and I can't pay the HELOC AND the mortgage, they could take the house. If I transfer it to cards, I just have to worry about making the mortgage to keep the house.


SO financial wizards of the lounge, these are the "cards" in my hand... how would you play them?

[Rabrrrrrr]

1. I've been told that cancelling cards can look bad on the credit report,

and that the piled up volume of potential borrowing amounts looks good.

I have a bunch, too, for the same reason you do, and I've not used a credit card in probably three years (all debit, now).

I did cancel the one card that had a yearly fee, though.

I'll just let 'em die a natural death. I got a letter a couple months ago from one card saying "You've not used it in 4 years (maybe 5? I can't remember) so we've discontinued it".

[Gormy Cuss]

2. What I would do is get rid of 5 or so.

I'd keep the ones with the best combination of long standing account + credit limit/credit terms.

Closing accounts at your own request is not supposed to ding your credit score unless it represents a substantial change, so closing a few that have low limits shouldn't matter especially if you close them slowly, say one every few months.

However, having so many open accounts ramps up the chance that you'll be hit by credit fraud and if it were me, I'd close some just to keep it simple.

As for the HELOC, I would get rid of it as soon as possible, but that's my financially conservative self speaking. YMMV.

[gmoney]

3. Thanks, but would you...

shift the HELOC debt over to a low balance transfer on a credit card?

[Gormy Cuss]

5. It would depend on the size of the debt and my comfort level with overall finances.

In other words, I can't put myself in your shoes on a HELOC debt.

We have a line for the sole purpose of bridging a gap if we have a major expense that we don't want to pay off this month (say for example, the furnace needs to be replaced now and the cash reserve CD matures next month.) If forced to run it longer than that we'd see how competitive it was compared to other options and decide.

[mwooldri]

7. Agreed here.

Close in preference: youngest accounts, accounts with lowest lines of credit, accounts with annual fees, accounts with high APRs. And close them slowly. Credit scoring works on a weighting of "payment history" (biggest factor), % of utilized credit (lower = better), length of time account has been open (longer = better) amongst other factors (sorry I don't remember them all but these are the major ones).

I am not a financial expert, just a call center coach for a major credit card company. I don't know how much your HELOC balance is, but if it is large enough, maybe flip it into a regular X year fixed mortgage? You'd have to compare factors such as the finance charges, the fees... but AFAIK mortgage interest can be tax deductible, HELOCs aren't and credit cards certainly aren't. You have a point that if you move the HELOC into credit cards it's unsecured debt and they can't take away your home.

Ideally the most number of credit cards a person should need is 2. One for every day spending with a rewards programme that they like attached to it - put through all spending on there and PAY IT OFF IN FULL BY THE DUE DATE EVERY MONTH. The other can be used as a line of credit, rewards don't care but APR must be ultra low, and maybe even the minimum due needs to be low in some cases too.

Regards, Mark.

[bluesbassman]

10. Good info mwooldri, let me add this.

I have seen FICO scores actually drop after canceling cards. The reason, as has been explained to me by credit repair specialists, is that the "weighting" (as mwooldri pointed out) gets skewed because the "good" credit is no longer applied to the scoring model when the account is closed. I think in your case though, you could safely eliminate a portion of your cards and not have an impact on you FICO score. The key is to make sure the cards you keep have a minimum of 24 months rating and have the largest line limits. Also, for FICO score purposes, at no time should any revolving account have more than a 30% ratio (ex. $10,000 limit/$3,000 balance). Going past that ratio immediately stars impacting your score.

A side note to your open credit card accounts is that you should use them from time to time. Part of the scoring model reflects "responsible" usage of your revolving credit. What I recommend is to use a different card every quarter for all of the things you would normally purchase with cash, and then pay the balance off monthly. This shows responsible credit usage, and you incur no financing charges.

As far as swapping mortgage debt to revolving, you would certainly need to crunch the numbers to determine the best scenario. Revolving debt interest is in most cases not tax deductible, however HELOC debt can be up to certain limits. You need to consult a CPA/Enrolled Agent to determine the tax implications.

On the subject of HELOCs, I advise everyone to get one whether you need it or not. The rates are historically low right now, and there may come a time when acquiring a Home Equity line may become difficult. If that time comes, and you have a need for the cash, it could be a problem.

BTW, I work in the mortgage industry, so these observations come from my personal experience. It sounds like you've been doing the right things so far, so I'm sure you'll make wise choices moving forward.:hi:

[yellowdogintexas]

11. yes, pay down the HELOC, to zero however you decide and

keep that LOC open as a just in case measure.

We need to get one because we need to do some stuff around the house and that would be a fallback, plus our Credit Union offers them and I feel much safer with them.

[ET Awful]

13. You won't get dinged for closing accounts, but you will lose points for having less available

credit. Especially if you ever run a balance on any of them. (see my response below).

[Sebastian Doyle]

4. As long as they aren't costing you any money (no balance, no annual fees, etc.)

Why not leave them open? The banks will hate you for it, because you aren't making them any money, but what can they do about it? Cancel a card you aren't using?

[carlyhippy]

6. call your card companies and try and get a low apr locked in forever

on balance transfers, and transfer the big balances to them. I have been playing that for a while now myself. But usually there is a 3% transfer fee, so keep that in mind. I have several cards, and keep them open as long as I am not charged any fees for having them, just in case in an emergency. The economy is so unstable, it's best to cover all bases.

[gmoney]

8. Thanks folks... :)

Or maybe I should just go out and charge a whole lot of canned goods, shotgun shells, bottled water, and batteries in preparation for the coming collapse.

Under hyperinflation, I'd hardly owe anything at all!

[knowbody0]

9. I paid mine off last month

and just received a bill for both of them for $17.14 each. I don't carry that security thing, they both had very different balances. WTF???

[ET Awful]

12. If they have an annual fee, close them, if not, keep them open. Here's why

35% of your credit score is calculated based on "utilization". This is the ration of your available credit to your balances (for instance, if you have, 10,000 of available credit and 4,000 in credit card debt you're at 40% utilization).

Having a large amount of available credit, but no debt indicates responsible usage and improves your FICO score.

I HIGHLY recommend that you go to www.creditboards.com and post the same questions there. The experts there will give you EXCELLENT information.

[Gormy Cuss]

14. Minor correction: 30% is utilization according to FICO

Having a lot of available credit and not running high debts is a strong positive, but if the total of all credit lines on 15 cards is high and the utilization rate low closing a few limit cards will have little effect in the FICO model. You're right that utilization rates are one of the principal drivers of the scoring system, but having $10,000 worth of available credit vs. $9000 is less important than keeping a low utilization rate.

If someone has marginal credit closing the accounts may have a bigger impact. For someone with decent credit it shouldn't matter if the score changes by a few points unless the score is hovering at a cut off point.

Thanks for the link,BTW. Lots of interesting stuff there. I read the thread about refusing to show ID for credit card purchases -- same sort of responses as it would get here. Many people don't believe that merchants are prohibited from requiring driver's licenses or state IDs as part of a Mastercard or VISA transaction by the master agreement between the vendor and the CC company.

[Midlodemocrat]

15. If you do cancel some, cancel the newest ones first.

The longer you have had accounts open, the better it looks on your credit report.

[kath]

16. Actually, my experience contradicts some of what is being said here:

A few years back, and for 2 or 3 years in a row, we were charged a higher-than-usual (ie, higher than the "preferred" rate" for our homeowner's insurance. The reason they gave was due to our credit report - they said that we had too many open lines of credit (and/or too high of a total credit limit).
We have a very good credit rating - one bounced check in the past 20 years, pay off balance on all credits every month, except for one that we occasionally write a "no-fee" courtesy check on and carry a balance for a while. We always pay our bills on time. Apparently they held it against us that we have one line of credit plus a card or two with fairly high credit limits that we haven't used in a long time, in addition to the 2 or 3 Mastercard/Visa cards that we do use.
Sooo - from my experience, having a lot of cards COULD hurt you, especially if your total balance limit is high.