Credit opinions

[Phobia]

I've heard a lot of speculation on open lines of credit, but never anything concrete.

Is it better to pay off and close a card or leave it open at a zero balance? What about a card you've qualified for, but don't really intend to use? I've heard both options and both make sense to me. Please help me clear this up - provide references if you can.

[cdcox]

It's better to leave the card open. You probably want to make a charge on it a few times a year to keep it active. One of the things that helps your credit rating is to have large lines of credit available that you are not using. It is a bad sign if you are using (ie carrying balances on) a high percentage of your avialable credit.

[Vegas_Dave]

Credit score is partially based on the percentage of debt vs the open lines of credit. So if you have $200 debt with only $2000 credit line, then you have a 10% debt vs your credit. However, If you have only $200 vs a $20,000 credit line, then you have only 1% debt and thus will have a higher credit score.

[cdcox]

Here is a link that discusses the finer points of credit line.

http://moneycentral.msn.com/content/Banking/creditcardsmarts/P71448.asp

The section "Don't cancel cards before a major purchase" addresses your question.

[Brock]

It's better to leave the card open. You probably want to make a charge on it a few times a year to keep it active. One of the things that helps your credit rating is to have large lines of credit available that you are not using. It is a bad sign if you are using (ie carrying balances on) a high percentage of your avialable credit.

I don't think I agree with this. For example, when you apply for a mortgage, they are going to look at how much unsecured credit you have available. If you have a lot of credit cards, whether there is a balance on it or not, the point becomes that you could run up a lot of debt.

[cdcox]

I don't think I agree with this. For example, when you apply for a mortgage, they are going to look at how much unsecured credit you have available. If you have a lot of credit cards, whether there is a balance on it or not, the point becomes that you could run up a lot of debt.

Any one who can qualify for a home loan can easily get more unsecured credit than they could possibly use just by responding to the offers in the mail. Maybe they figure if you have the credit available, but are not going hog wild with it, that it shows discipline.

[Bill Lundberg]

www.equifax.com

[Bill Lundberg]

I don't think I agree with this. For example, when you apply for a mortgage, they are going to look at how much unsecured credit you have available. If you have a lot of credit cards, whether there is a balance on it or not, the point becomes that you could run up a lot of debt.


Not true. When you apply for a mortgage your loan is underwritten based on the credit at the time it was pulled, not on what it could be. That's why its a good idea to apply for loans after you've paid off cards.

[RedNFeisty]

Having an open credit line that you charge to every once in a while is better then just closing it. When you use a credit card and pay the balance off it helps to increase your credit score.

[RedNFeisty]

It's better to leave the card open. You probably want to make a charge on it a few times a year to keep it active. One of the things that helps your credit rating is to have large lines of credit available that you are not using. It is a bad sign if you are using (ie carrying balances on) a high percentage of your avialable credit.

Yeah, what he said!

[RedNFeisty]

Credit score is partially based on the percentage of debt vs the open lines of credit. So if you have $200 debt with only $2000 credit line, then you have a 10% debt vs your credit. However, If you have only $200 vs a $20,000 credit line, then you have only 1% debt and thus will have a higher credit score.

You go by debit to income ratio, that is all anyone cares about.

[RedNFeisty]

I don't think I agree with this. For example, when you apply for a mortgage, they are going to look at how much unsecured credit you have available. If you have a lot of credit cards, whether there is a balance on it or not, the point becomes that you could run up a lot of debt.

Debit to income ratio! Doesn't matter about what if's as long as the debit to income ratio is low. A bad ratio is 45%.

[Iowanian]

I don't think I agree with this. For example, when you apply for a mortgage, they are going to look at how much unsecured credit you have available. If you have a lot of credit cards, whether there is a balance on it or not, the point becomes that you could run up a lot of debt.

This is more what I'm thinking and have been told.

At the closing of our house, my credit score was in the 800 range.
I have been told, and have made actions to towards doing this, but any "Available debt" IE Credit Cards, are a potential debt/expense issue and count Against my credit.

I have tried to eliminate Credit Cards I don't use(which is most of them) and after getting married, we cancelled most of them we had. Earlier in the year, when someone put the credit check Link up, I found some open accounts I didn't have cards for, and cancelled them.

Between that, paying off balances as soon as I can, and paying loans on time or early, I've built great Credit. I just fired another credit card for raising my interest rate, and will be down to 2 between my wife and I.

I guess from what some are saying, I'm wrong...and its possible, but its worked for me to do things this way.

Keep an income, Pay off debt on time or early, and don't live outside your earnings is my template. I see nothing financially dumber than High Credit card Bills and "interest only" Mortgages...but I'm no financial guru. Listen to the Pros.

[ptlyon]

Slighly OT, but ever notice when you pay off a CC and cancel them how many offers you get in the mail?

[tyton75]

This is more what I'm thinking and have been told.

At the closing of our house, my credit score was in the 800 range.
I have been told, and have made actions to towards doing this, but any "Available debt" IE Credit Cards, are a potential debt/expense issue and count Against my credit.

I have tried to eliminate Credit Cards I don't use(which is most of them) and after getting married, we cancelled most of them we had. Earlier in the year, when someone put the credit check Link up, I found some open accounts I didn't have cards for, and cancelled them.

Between that, paying off balances as soon as I can, and paying loans on time or early, I've built great Credit. I just fired another credit card for raising my interest rate, and will be down to 2 between my wife and I.

I guess from what some are saying, I'm wrong...and its possible, but its worked for me to do things this way.

Keep an income, Pay off debt on time or early, and don't live outside your earnings is my template. I see nothing financially dumber than High Credit card Bills and "interest only" Mortgages...but I'm no financial guru. Listen to the Pros.


agreed, I live by the same basic thought... except I have only one open line of credit and I never use it.. and I have excellent credit.. so it works for me

[Phobia]

Okay - thanks for the information. Still seems to be split understandings of how it works.

My wife wants to close all our unused, zero balance cards. I think we should keep them to improve our credit score. Who is correct?

[wutamess]

Basically... Follow your gut.

just my .02

[nmt1]

I read somewhere that it's better to keep them open but I don't remember the rationale.

[jspchief]

In this month's Readers Digest, it says it's better to keep them open. I suppose I could copy the article.

[ptlyon]

This may help:

Lending Tree (http://www.lendingtree.com/cec/yourmoney/yourcredit/good-debt.asp?esourceid=33991&source=33991)

This one is wishy-washy (http://www.lendingtree.com/cec/yourmoney/yourcredit/improving-your-credit-score.asp?esourceid=33991&source=33991)

The one above says it is good to have open lines of credit, but not too many.

The whole list (http://www.lendingtree.com/cec/yourmoney/yourcredit/default.asp?source=33991&siteid=&esourceid=33991)

Hope this helps.

[pink]

My wife wants to close all our unused, zero balance cards.
not true. i just don't agree with opening a bunch of cards with a bunch of limits. first, it's too cumbersome administrative-wise (and for security/ID theft) to keep track. second, i believe 2 or 3 cards is sufficient for anyone/couple. and third, once you have the 2 or 3 cards, over time of charging and paying off and on time, they will increase your limit. keep the 2-3 cards that offer you the lowest interest rate. dump the rest.

[Mr. Laz]

Okay - thanks for the information. Still seems to be split understandings of how it works.

My wife wants to close all our unused, zero balance cards. I think we should keep them to improve our credit score. Who is correct?

keep them open to improve your credit score is my vote



IMO if you really wanna raise your credit then use credit card to buy everything. But then pay it off completely at the end of each month. The Credit card companies with start increasing your limit based on your activity and prompt payments.

[beavis]

Keep an income, Pay off debt on time or early, and don't live outside your earnings is my template. I see nothing financially dumber than High Credit card Bills and "interest only" Mortgages...but I'm no financial guru. Listen to the Pros.
One would think this is pretty common sense stuff. It still amazes me how many people don't get it.

[Iowanian]

I found these quotes of interest from ptlyon's lending tree link:

"Length of your credit history. Creditors prefer you to have a long and consistent track record of repaying loans.

The number of new credit accounts you've opened or applied for. Every application for credit shows up on your credit report, telling lenders that you may be taking on new debt.

The types of credit you have. Creditors look more favorably on some types of credit than others. They’d prefer you to have a mortgage secured by your home, for example, than longstanding credit card debt.

Loans that appeal to creditors:

A mortgage can look good to potential creditors, as long as you’ve kept up your payments. As an added bonus, the interest on mortgage payments may be tax-deductible up to the first million dollars (though you should consult a tax advisor about your particular situation). And, hopefully, real estate is an asset that will appreciate in value.


Credit cards can be a good thing in the eyes of creditors, as long as you make regular payments and don't apply for many new cards within a short period of time. But creditors don’t like to see you carrying a credit card balance of more than 80 percent of your available limit. In other words, if your total credit card limit is $10,000, your total credit card debt should be well below $8,000.

[Iowanian]

One would think this is pretty common sense stuff. It still amazes me how many people don't get it.

what baffles me, is the number of people, renting an apartment, but have $30k in CC debt, 250 channels, a 60" big screen and drive an escalade. "how much a month" mentality.

What this credit stuff shows me, is that every time you fill out those CC applications for a free TeeShirt at a Chiefs game, it can hurt your Credit score.

[KCTitus]

not true. i just don't agree with opening a bunch of cards with a bunch of limits. first, it's too cumbersome administrative-wise (and for security/ID theft) to keep track. second, i believe 2 or 3 cards is sufficient for anyone/couple. and third, once you have the 2 or 3 cards, over time of charging and paying off and on time, they will increase your limit. keep the 2-3 cards that offer you the lowest interest rate. dump the rest.

I have to agree...I had the same concern especially about CC theft. I had roughly 12 different cards with only 1 having a balance. I closed all the others recently. I accumulated many of these up as I jumped from card to card for better interest rates. Now Im down to one main card that is at a 4.9 fixed rate.

Some of the CC's were so old, they deleted the account years ago or couldnt find it in their system. Others tried to bribe me to keep it open with all kinds of junk.

Does it improve credit rating? Dunno...I tend to guage my credit rating by the number of CC solicitations I receive in the mail.

[cdcox]

not true. i just don't agree with opening a bunch of cards with a bunch of limits. first, it's too cumbersome administrative-wise (and for security/ID theft) to keep track. second, i believe 2 or 3 cards is sufficient for anyone/couple. and third, once you have the 2 or 3 cards, over time of charging and paying off and on time, they will increase your limit. keep the 2-3 cards that offer you the lowest interest rate. dump the rest.

Two or three cards should be plenty. The only caveat is that if you have a card with a huge line of credit, in comparison to your low-interest cards, you may want to keep that one just to show the line of credit.

[pink]

Two or three cards should be plenty. The only caveat is that if you have a card with a huge line of credit, in comparison to your low-interest cards, you may want to keep that one just to show the line of credit.
agree as long as the rate is not astronomical.

[papasmurf]

agree as long as the rate is not astronomical.


Just pay it off every month.

[DTLB58]

Don't just close the accounts but cut up ALL your cards and follow the Dave Ramsey baby steps plan and become DEBT FREE!

And before you all start screaming, no, you don't need a stupid credit score to buy a house or car (which the car can be done with cash IF you really want to) IF you have to get a loan for a house go to a mortgage company (Here's one, Churchill Mortgage) that does manual underwriting and looks at the person and not just a credit score.

Me and my wife cut up all our credit cards 2 years and 3 months ago and have only used a debit card since. Yep, that means if we don't have the money we don't buy it. For a debit card the money has to be in your checking account. And yes, with a VISA debit card you have all the protection against theft that you do with a credit card.

We have been following the Dave Ramsey "Beat debt Build Wealth" program for 7 months now (which includes doing and sticking to a budget EVERY month) and we have saved $1,000 as an emergency fund (Baby step 1 of 6) so when life happens we don't borrow more money or go back to credit cards. And have paid off $12,674.24! We are 1/3 of the way thru our consumer debt or our "debt snowball" (Baby step 2) this does not include our house and we should be debt free but the house, while using nothing but cash in about 12 more months.

Guys and gals IF you will LIVE LIKE NO ONE ELSE NOW, LATER YOU CAN LIVE LIKE NO ONE ELSE! Think about it......

When I first heard about this plan and bought The total money makeover book and sat down and figured how much we were paying out in payments every month me and my wife were shocked at how much we were just blowing every month. $1,300 a month we were making in payments for STUFF every month, not including the house! So those of you who think you can't save up and pay cash for that next car or whatever it might be. Just think about it, if I save that $1,300 every month for the next year I will have $15,600 and I will pay cash for our next vehicle when we are debt free! I know that's NOT normal but that's exactly what we don't want to be anymore, normal. Why continue to try and keep up with the Joneses, there broke!

Sorry for the rant, I am just very excited about this right now and like spreading the philosiphies of the plan.

[Mosbonian]

From someone in the Industry, I can tell you that no two lenders are alike in how they look at Credit debt.....

Mortgage lenders will give you all kinds of explanations, but more than anything else, they are concerned about having a history of meeting rent/mortgage payments and having a "cushion" in the value of your security(i.e. your equity) in case there is a need to foreclose. Beyond that, all they truly ever use the "debt vs asset ratio" for is to give them a reason to up the required down payment.

The more reputable Credit card companies will be a little more thorough, but are working on something that they used to call the 'JC Penney' method.....for every $1 that they loan out, they pretty much reserve for a loss of .20 on the dollar. They think more about volume and return on investment (interest) than good vs bad credit.

But back to your question....

I would say the best answer I have seen thus far has been Iowanian's...

mmaddog
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