Question for you financial wizzards about credit cards. We paid all of our off

[greenbriar]

is it better for our credit:

if we ask the credit card company to close our accounts at customers request


or is it better to leave them open with 0 balance?

[CountAllVotes]

1. yes, it is better to leave them open

I checked into this question myself. Best to keep them open. Go ahead and lower the credit limits - that is what I did rather than close them out completely. You might want to just keep one or two of them however if you have a whole bunch of them.

[pooja]

2. leave them open... put them in a safe... keep one that you will use

occassionally... so they can track you... tracking you creates your profile.

[Marie26]

3. Not a financial wizard

But I was just looking into this, and it's apparantly better for your FICO score to leave the old credit card open w/ a zero balance, because this creates a better debt/available credit ratio, and makes it look like you have a longer credit history. Both factors increase the FICO score, according to this book. It was really helpful, maybe you can check it out of the local library. "Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future." - http://www.amazon.com/Your-Credit-Score-Improve-Financial/dp/0131486039/sr=8-1/qid=1165076770/ref=pd_bbs_1/002-6838383-4820856?ie=UTF8&s=books

[Demoiselle]

4. I think...

The best thing to do is keep the accounts open, charge a tiny bit every month...and pay it off scrupulously so they can't hit you with interest charges for a "late" payment.
This keeps you on record as someone who pays your debts on time. I'm certainly not an expert, but I think it's impossible to maintain a good credit rating in this weird world if you never use credit. Without using any credit, they may say that you have NO credit rating and are therefore unratable..ie., they won't give you any credit if you should need it . I'm sure there will be plenty here at DU who can give you a better take on the thing than I, however.

[Karenca]

10. You're correct

Keep the accounts open, at least the ones that are at least 3 years old.

The best way to keep your credit score up s to have a ratio of 25% debt to 75% available credit.
But even a small balance is better than zero balance.
And having no accounts older than 3 years old brings your score way down.

[lumberjack_jeff]

16. I send all my housebuilding expenses...

though a cash rebate credit card. When the bank checked my credit score, it was very good (800+ if memory serves) despite our tiny income.

I have a handful of cards, only one of which really gets used - paid off each month.

Using that card in this way, the credit card company pays me. Their annual fee is much less than my rebate and I get 30 days of float.

Bottom line, not carrying a balance has not hurt our score.

[Karenca]

29. 800+ is a very good score!

The reason I suggested 25/75 ratio is because Credit Bureaus
do take into account how much available credit (credit/debt ratio) you have
while factoring your score.

To get the best possible score you should maintain a low unpaid balance on your credit accounts. High available limits can hurt your credit score.

But whatever you're doing is working great, so I'm generalizing this information.

[Nobody]

38. Wrong-ola

900+ and refuse to use credit cards and have never had any.

Paying your debts on time: Paying your bills, paying off loans. You don't need credit cards.

By the way, I own a house. When I was applying for the loan, I asked the loan arranger if my not having credit cards would be a problem. He told me that there are ways other than credit cards to build credit.

[ProdigalJunkMail]

47. what scoring scale are you talking about?

FICO ranges from 300-850...anything above 850 ain't FICO...

sP

[Warpy]

5. Leave ONE open

and put it in a box under a pile of junk in the attic, basement or garage, somewhere you'll have to WORK HARD to dig the sucker out. Make sure it's a real emergency by making it a pain in the ass to get to.

Having 10 cards with a 0 balance is also a red flag for some folks. Having ONE card with a 0 balance makes you look very stable.

Congratulations on paying the suckers off! That's a fantastic achievement in this economy! You've just increased your chances of getting through the next recession with all your assets intact.

[texpatriot2004]

36. I've been wondering about how to protect yourself in a recession

any other tips about that?

[Warpy]

40. First, reduce your debt load as far as you can

Second, make sure you have a plan in place should you lose your job and find yourself pounding a cash register someplace until the recession is over.

Third, learn to cook. You'd be amazed how much money you can save if you avoid fast food, restaurant meals, and convenience foods.

Fourth, learn the difference between economy and false economy. Bologna may be cheap meat, but beans will give you more protein plus fiber, vitamins, minerals, etc. Those K Mart shoes may be half of what a decent pair of shoes in a shoe store might cost, but they'll only last a third as long.

Fifth, expect and prepare for the absolute worst that can happen, including a long stretch of unemployment with tight competition for low level service jobs. You can hope to be pleasantly surprised, but be prepared for the worst.

It's all about cutting those monthly bills down as far as you can so you can hang onto your assets with greatly reduced income.

This is all from somebody who survived the 70s without having to hock the stereo or sell the car.

Finally, one of the greatest bits of wisdom I ever heard from my mother, "It's not a bargain unless you really need it."

[texpatriot2004]

45. Hey thanks so much for this sage advise :-) nm

[unblock]

6. assuming you've got financial restraint, it's better to keep them open

congrats on your credit card success!


having unused credit (up to a point) improves your credit score because it shows you can responsibly pay off your bill or avoid getting in too deep.

also, having accounts open for a long time improves your credit score because it shows, well, mainly age.

if you don't have financial restraint, lowering your credit limit is better than closing the account altogether.
if you have too much available credit, lowering your credit limit is also good.

however, whenever you think about lowering credit, keep in mind that credit might be difficult to get back if the unexpected (e.g., layoff) happens.

[Mark E. Smith]

7. Pay them down to zero every month

Last thing I want to do is pay those bastards interest.

[Aviation Pro]

8. Three years ago....

...I paid off my accounts and canceled the cards. The amount of money I have saved is astonishing and since there's no temptation to use them, even one, I live life on my own terms. Incidentally, the urban myth of not being able to use a debit card in lieu of a credit card for renting a car or making airline reservations is the biggest lie of the rapacious credit industry (if a customer service drone tells you it's company policy not to accept debit cards, just talk to a manager who punches in a special code and then it works).

My advice, get rid of all those fuckers and smile broadly. Cash rules.

[BlueJazz]

9. My Sister, who is "Big Shot" (but nice) at a Major Credit Service says....

..."Not only should they keep them open. but buy some small stuff to keep a balance
of maybe 200-350 on two of them...Pay on them each month..The Finance charges will be Peanuts
BUT it really keeps your "Score" VERY high...the 30 or so bucks per year in interest is well
worth the money...We look at how the customer has paid in the past year, not so much the amount"

Makes sense to me! :)

[Karenca]

11. Yes

She's exactly right.

[napi21]

13. So you're saying if I havea number of credit cards, use them all for

differeb=nt purposes, andpay each one in full every month is wrong? Well, that's too bad, because the last time we bought a car, even though we paid cash, the AH's were determined to run our credit rating anyway. The salesman came out and said "Your credit rating is so high, you could go to the BMW dealer andtell them you just wanted to order a new one with no down payment, and they'd say fine!"

I've had almost all my credit cards for many years, and have always paid them off in full every month. I don't even want to calculate how much available credit I have. I know without checking, it's over $35,000.

Too damn bad if they try to affect y credit csore because they aren't making money off of me, but it doesn't seem to have mattered in my case.

[BlueJazz]

14. Yep...What you say is very true...but keep in mind......

It also depends on who you ask.

My Sister's outfit scores a certain way and Transamerica (Sp??) scores
THEIR way and the other outfits have their own "Thing"

:)

[Nite Owl]

15. But why do we have to be

forced to play their game? I have no credit card debt, haven't paid a finance charge in years, have no car payments and no mortgage. I got penalized for this by my homeowners insurance. Their credit rating (which is not the same as 'the credit score', insurance companies have their own system which is secret) said I hadn't opened a new accounts therefore was not eligible for their best rate. The system is upside down, aren't we supposed to be responsible with our finances and not borrow what we can't pay off, isn't that the ideal? I have several credit cards with tens of thousands of dollars that I could borrow but they want me to open more accounts. I just refuse to play their game.

[Lurking Dem]

17. Yes you get points for revolving.

That's how the banks make their money so keeping a balance - even a small one - earns you more points than paying it off every month.

[roody]

19. It would be better for them to make NO PROFIT

from interest you (don't) pay.

[roody]

21. I prefer to not even give them pennies of interest!

[greenbriar]

12. thanks. I will keep them open and maybe rotate gas on them

and pay them off each month. I can see how that builds credit !!!

[seabeyond]

18. i have ONE card. annual fee, no monthly charge. i charge everything

on it. then pay it off at the end of the month. all the stuff i would normally write a check for or pay cash for i charge. a very active account. and then i pay at the end of the month. would have spent that money anyways. i get no extra charges and i get frequent flyer miles. i was able to buy a flat screen tv from sears last year with frequent flyer miles. i am ahead of the game and my record looks great

[Cerridwen]

20. My understanding is, that open credit accounts add to your

"debt load." For example, a card with a 3500 max plus a card with a 5000 max shows on your credit report as 8500 debt; depending on who's reading the report and for what they are looking - it can skew your debt to income ratio.

I am not a lawyer nor a credit adviser but this was something I investigated a few years ago as I was cleaning up my credit report. You may want to contact a professional who reads credit reports to find out what they look for. Example, a home lender...would they read your 8500 potential debt as a reason to refuse you credit since your debt load is too high?

If each card is only 1000 and you have 3, that may not be an issue. If you have 1 with a 20,000 max and a couple at 5000, it could be an issue. It could show that your debt is 30,000 to an income of whatever you make a year...say 45,000 income with 30,000 debt load doesn't look great. Please check with some real experts. :D

Just my $0.02.

edit; grammar

[Greyhound]

22. Is anybody else concerned that we have now become our credit rating?

That a nearly arbitrary number generated through a secret formula created by a corporation (Fair, Isaac & Co.) that has no knowledge of, nor concern with, your individual situation, and the reporting agencies are legally protected from being sued for any adverse effects that their, likely mistaken ("Mistakes are not rare: A representative from Debt Counselors of America, now called MyVesta.org, told SmartMoney not long ago that as much as 30% of credit reports include inaccuracies." That's tens of millions of us) judgment might have on your life, can literally ruin you?

[TahitiNut]

43. Yes! We have strangers "grading" us and pooling their grades ...

... in an agency that makes those grades available to other strangers, as well as potential employers or even one's current employer. Even a neighbor! It's a database I regard as more intrusive than even a handgun registry or National ID. The, in an artful scam, they "permit" us to make corrections to that data (reporting on ourselves) and "challenge" any data we might regard as inaccurate - but with no assurance of correction or removal. In Michigan, a poor credit rating can (and does) result in higher automobile insurance rates - or even refusal to offer insurance in other than an "assigned risk" pool at HUGE rates. Note that this is completely independent of one's driving record. It's abominable.

[lumberjack_jeff]

50. The only grading system that is more obtrusive is the medical information bureau

Equifax uses your information to decide if you'll get a new car. The MIB uses their information to decide if you'll get dialysis.

Insurance companies use the MIB information to decide whether or not to give you medical insurance.

[EnviroBat]

48. Yes, and it's WRONG!

We are not protected from scam organizations threatening to report us, even if they are the one's who fail to uphold their end of a contract. Let me further cite the injustices of these "Credit Bureaus". Why is that if I pay my student loans, on time, every month, my credit rating is not positively impacted by this, (and don't tell me it is because I recently applied for a home mortgage)? But the day I miss a payment, Great Lakes is sure to report me. I'm so fucking sick of this bullshit with the credit bureaus, and lending agencies. They are crooks, and this is nothing more than a divisive system to keep those that have been down, down... Can we not get stricter legislation enacted to protect us from the vicious crap they are getting away with?

[fredsanford]

23. Close all those with annual fees

Or better yet, ask that you not be charged an annual fee. It worked for me.

[xchrom]

24. you want to use them but pay them off.

when i first started doing this -- i used my cards very little and paid cash -- now i carry very little cash and pay by card but them off every month.

and i rotate my cards every so often so that each different card reports a good track record.

i never, ever carry a balance.

[pitohui]

25. oh hell they keep changing the rules

in years gone by they said it was better to close them and make sure the credit card company stated "closed by customer request"

otherwise, eventually some of them get closed anyway, for non-use, by credit card company request, and supposedly this looks bad -- although, to be honest, although i got a snitty letter than this had been done to me, i don't think it ever impacted my credit any

more recently they're saying to leave the accounts open with zero balance, i'm not sure of the logic of this, but apparently the way the scoring has been changed, leaves this loophole that having un-opened un-used accounts looks better

i doubt this will remain the case, especially i doubt that having lots of available credit that could be accessed on your signature in a day looks terribly great when you're about to buy a house or an expensive car

in the end, i'd leave a few active just to be able to rent cars, buy airfare, reserve hotel rooms without hassle, and i'd probably put one in a safe deposit box as a "back up" just in case, and i'd close the rest

despite my low income, i do have excellent credit and have no trouble getting the preferred rate, so it works for me, no guarantees for you, since they keep changing the rules

[Jed Dilligan]

26. The assholes won't close them for you

I've been trying to close a Shitibank credit card since 1998. 0 balance, letter after letter. They send me a statement every month and a new card periodically, which I promptly cut up and put in the trash.

I think it's better for your credit rating to have accounts open and paid off. I just have a particular hatred of Shitibank and want no relationship with them... Then the fuckers go and buy my student loans! :mad:

[Cleita]

27. I'm having the same problem. Not only that I had identity theft

on the card six months after I paid it off and requested it be closed. Although they took the illigitimate charges off, they still haven't closed it even though I have requested it like you over and over again. I keep getting those checks in the mail for the cards, which is how I suspect the identity theft happened, and new cards like you do. I guess I'm going to have to take more drastic action. Since Jerry Brown is my new Attorney General, I'm thinking of writing him about this after he takes office and ask his advice about what I can do.

[Jed Dilligan]

28. I know people close to Jerry,

PM me when you do write him and I'll alert them to the issue.

[Cleita]

32. Thanks I will. I'll make a point of getting this together this

weekend.

Thanks :-)

[elocs]

31. For 7 years I have paid off my credit card balance each month.

Because of that, the credit card companies consider me a "deadbeat". I could care less. I am playing by the rules, just as taking every tax exemption for which I am eligible. I pay for virtually everything by credit card and am more than happy to use them for a 30 day loan. My FICO score is good, but that does not matter to me since I have no intention of buying a house or making any other major purchase. I have no intention of paying any interest every month, certainly not $30 because for me that is money wasted. For me, $30 would pay my phone bill every month and I am not giving that to the credit card companies for the honor of a better credit score. Ironically, my FICO score dropped last month by 30 points and the only reason I could see for that is that I started a new job. No, I'll stick with living on the money I make and the cash I have. I'll make the credit card work for me.

[Cleita]

33. I haven't checked my score like you, but I'm sure it's down.

Like you, I don't care. I won't be buying anything major either, including a car. I'm just keeping the old rust bucket running until I can't drive anymore.

[elocs]

41. I only found my score by chance when I checked a 2nd card that I have,

but do not ordinarily use and it had my FICO scores for each month of the past year and I noticed that it had dropped from the previous month and the only thing that had changed was that I had gotten a new job. I have a '92 Chevy that keeps plugging along with over 200,000 miles on it. It is nice to be out of debt and able to live on cash.

[lumberjack_jeff]

51. Good for you. I doubt that prudent spending will hurt your score very much.

I do what you do, and it hasn't hurt me.

[Marie26]

44. Nag them & dispute it.

I called my credit company three times to get an assurance that it was closed - they lied to me the first 2 times, until I spoke to the credit dispute department. Even if they close it, they might not notify the credit report companies that the account was closed. If it's still reported as open, you can dispute the account to the credit report companies - sending them a letter, calling them or disputing the account online.

[wicket]

52. They bought my loans too

Grrrr....can't stand them.

[SoCalDem]

30. What we did.. We paid off and closed all but 2 cards

we use each sparingly and then pay off in full the next month (or sooner by doing it online).

Some card companies will cancel an account that's dormant too long, and it might show up as a mark "against" you if THEY closed it instead of YOU cancelling it.

[texpatriot2004]

34. Many of the things that make you look good to credit companies

or things that increase your score actually defy logic...

better not to pay them off completely because it looks better to make consistent payments on small balances

better not to have high available limits (ie unused credit)

having many cards with zero balances is bad, but having 1 with a zero balance looks good

I know these things are true, but it has always struck me as illogical and even absurd.

Thanks Greenbriar for this thread.

[texpatriot2004]

35. Anyone use or subscribe to freecreditreport.com? I have been

curious about it but reluctant to "sign up" and pay a monthly "monitoring fee" - is it worth it?

You can get your credit report for free once a year from each of the major 3 reporting agencies at annualcreditreport.com which I think is free.

Just curious. Thanks.

[Marie26]

42. I think it's a scam

Under the new FACT Act, consumers are entitled to receive a free copy of their credit report every year. The actual government site where consumers can get this free report is at "annualcreditreport.com." "Freereport.com" isn't the real free credit report site, it's just a knock-off that's taking advantage of people by pretending to be the official site. It isn't free - if you sign up, unless you cancel in 30 days, you're automatically charged $12.95 a month - that's $154 a year, charged straight to your credit card. Also, if you check the report twice, or sign up again, you'll be billed the full rate at once. The "terms & conditions" are just as tricky as any credit card - IMO it's basically aimed at tricking people into paying the full price w/o meaning to. How else are they paying for all those TV ads?

This is the REAL free credit report site - https://www.annualcreditreport.com/cra/index.jsp

[texpatriot2004]

46. I thought so. Thanks. nm

[Nobody]

37. If you don't plan to use them, close them

You don't need to have a credit card to have credit. Credit comes from having a savings account, paying your bills on time, paying off loans. I refuse to have credit cards and my credit is in the top category.

[renate]

39. I'm kicking myself because I opened up a store account the other day

I was buying a bunch of stuff and I got a big enough discount by applying for the card that I thought it was worth doing. The cashier told me I could cancel the account the next day so I thought what the heck... now, from reading some of the replies here, I guess cancelling it will look bad? Even if I do it myself right away? Crud.

By the way, for those who only have one card and always pay it off and wonder how that'll affect their credit score: We have an excellent credit score and we only use one card (although we have a couple that we never use--all have pretty high credit limits). We pay it off every single month and never carry a balance. So maybe not carrying a balance and only using one card can be a good thing, credit-score-wise. :shrug: That's just our own experience, of course.

Anyway, people who know about these things--what do you think about either carrying or cancelling the little store-specific cards? Good, bad, neutral?

[ItNerd4life]

49. The advantages of high credit limits

I haven't seen this mentioned but one of the factors is what your debt ratio is to your credit limit.

This is an important ratio when you are applying for large loans like a car or house or investment property.

The reason: Creditors look at the ratio and total available credit because if you lose your job or fall on hard times, you can utilize this credit to keep paying your loans.

If you have 2 credit cards with a $15,000 limit and have $7500 on each, then your ratio is 50% and a limit of $15,000. This isn't good because your ratio is 50% with $15,000 in emergency reserve credit.

Same scenario, but only $500 on each card your ratio is 3% with $29,000 in available credit. Much easier and safer for you to tap into during hard times. This is what creditors want to see, also it shows that you understand how to use credit effectively and how to manage your money.