Rebuilding credit score question

[Pennykay]

I have been rebuilding my credit and it is now above 700. However, I did something stupid (I think) and am not sure how to handle it now. I opened a Target charge to get the extra discount because it was a high order. Now I am wondering if I should keep the credit card, or just cancel it. ( It is a 0 balance, but I just opened it last month) So, which will hurt worse, keeping it at a 0 balance, or just cancelling it. Thank you!!

 

[Toby'sFriend]

If it is a brand new card without a balance - the effect on your credit score from closing will be very minimal.

The biggest decreases come from closing cards that you have had a very long time. If you are worried about your credit score, keep a card or two that you've held the longest open.

 

[Pennykay]

Thank you! That is exactly what I wanted to know.

 

[DisneyMissy318]

Congrats on working on raising your score! Anything you have done in particular? How long have you been at it? We are doing everything right (for a change!) - paying down CC - not opening anything new - but it takes SO LONG for that number to creep up the scale!

 

[juliana_sd]

It's hard to say. Opening it probably dinged you a few points due to the inquiry and the decrease in the average acct age. Closing it could hurt you if you got a high credit limit and you carry balances on any of your cards, since one of the big things they look at is the percentage you owe vs. the amount you have available. "They" like it to be under 10%. Also, if you close it, I don't think it affects your average account "age" because it will still be on there, just as a closed acct. So I would lean toward keeping it open, as strange as that sounds. Credit reporting agencies' formulas are odd things.

(BTW, as "credentials" for my response - this time last year my FICO was about 680. Now it's 770 - I had some extremely large balances that I funneled every spare dollar into paying off, and had a few old late payments and a collection fall off. I just sent my last big payment last week so I am hoping to see one more little bump in my score!!)

 

[pumpkinfish]

It's hard to say. Opening it probably dinged you a few points due to the inquiry and the decrease in the average acct age. Closing it could hurt you if you got a high credit limit and you carry balances on any of your cards, since one of the big things they look at is the percentage you owe vs. the amount you have available. "They" like it to be under 10%. Also, if you close it, I don't think it affects your average account "age" because it will still be on there, just as a closed acct. So I would lean toward keeping it open, as strange as that sounds. Credit reporting agencies' formulas are odd things.

(BTW, as "credentials" for my response - this time last year my FICO was about 680. Now it's 770 - I had some extremely large balances that I funneled every spare dollar into paying off, and had a few old late payments and a collection fall off. I just sent my last big payment last week so I am hoping to see one more little bump in my score!!)

Hey that's really good! I'm working on creeping my up too. Paying down the cc's are our number one concern. I had to actually establish some better credit and got a credit card and use it to buy my gas and then pay it off every month. Since doing this (4 months) I have already seen an increase (small but NOT insignificant to me ).

OP- I wanted to congratulate you on your big increase as well!

 

[Pennykay]

Thanks, guys!! I have been really focused on paying those balances off and making sure I never have a late payment. The new credit card is throught Target, and it's only a 500.00 limit. I really don't need it at all, so I can keep it or ditch it, whatever is better. Good job to you all who have raised you're scores. It is very inspiring!!

 

[JeremyGNJ]

If the target credit card has a high limit you should NOT cancel it. One of the biggest factors of your credit score is the ratio of available credit to used credit.

So if you had 3 credit cards with a total of $10,000 limit, and you had $3000 racked up on them, your ratio would be 33%.

However if your new target card had a limit of say $2000, now you'd have a total of $12,000 available credit, but still only owe $3000. your ratio would be 25%...most likely resulting in a higher score.

Unless a card has annual fees (which are not worth the rewards you get from the card), there's no reason to ever close an account.

 

[Frankiesmom]

she said it had a $500 limit- read the posts.

 

[ericamanda01]

she said it had a $500 limit- read the posts.

Relax, the $500 wasn't mentioned in the OP. I would vote to close it.

 

[JeremyGNJ]

yea but we dont know the rest of her financial situation. If her other cards only total $3000 in credit limit...then $500 extra would be significant.

But in any event, you can always just cut up the card and leave the account open as long as there are no fees...it doesnt really do any harm

 

[ericamanda01]

yea but we dont know the rest of her financial situation. If her other cards only total $3000 in credit limit...then $500 extra would be significant.

But in any event, you can always just cut up the card and leave the account open as long as there are no fees...it doesnt really do any harm

That's true, I didn't think about that and $500 could make a difference.

 

[Pennykay]

I have two other cards. One is a 1,000.00 limit with a zero balance, and one is a 5,500 limit with a 2,000.00 balance. I have had both of those cards for more than five years.

 

[JeremyGNJ]

In that case I would keep it open and just not use it...as long as there's no annual fee.

Reason is that it's like an 8% increase to your total available credit. *Just dont use it!!!!*

Additionally, it can sometimes be better to have more accounts (but not too many)

Another thing you'll actually WANT to do....if you dont already have some sort of mortgage or auto loan, then you should get one. Even if it's just a small loan. If you're trying to improve you score to get a mortgage it might even make sense to take out a bank loan for no reason at all other than to pay it off.

Reason is that your score improves by having diversity of both revolving accounts (credit cards) and installment accounts (loans)

 

[JeremyGNJ]

and I should say I'm not an expert or professional or anything....research stuff on your own before you know if it's right for you.

 

[Pennykay]

 

[Jordans_Mommie]

Great thread I have two credit cards with a zero balance that I do not use at all. Some of my co-workers were telling me that I am hurting my credit by having a zero balance and no activity on the cards and I should use it for groceries and gas and pay in full at the end of the month.

I haven't taken their advice as I am quite comfortable using my debit card and would rather forget that I have those cards. Neither card has any rewards and my Chase debit card has it's own rewards plan which I love.

Is this true? Should I be using those cards?

 

[aribelle]

Ok, I haven't worried about a credit rating in probably 20 years....we've got our bank sending us annual "checks" in the range of $50k to take to an auto dealer and buy a new car that we simply shred and ask them not to send it (which they do every year, sigh). So, I may be out of the loop about the "new credit" or something.

But...my recollection when I was trying to get my first mortgage was that they look at the total amount you have available especially the zero balances and consider the fact that if you run into financial trouble you could suddenly decide to USE all that available credit. I recall this because I had probably every department store credit card known to man, just no balances and the mortgage broker said if I was turned down for this mortgage (it was a high mortgage and I was a single woman with a middle wage) then I should close all the accounts I'm not using and wait 6 months to apply again. I was approved for the loan when I increased the down payment by $5,000 but I took his advice and after the house closed, I closed every one of those cards that I wasn't using and stopped opening accounts just for the silly freebies they used to give away, lol.

Are you saying that's a bad thing? I opened a Disney VISA in December to get the $50 gift card and to use on our trip last month for the free 5x7. I charged everything on our trip to that card and paid it off each week, so it's got a zero balance now that we're home. I was thinking of closing it because DH also has a Disney VISA and I just don't see why we need two of them. I thought having two would be good so we could get two 5x7....but heck we bought the Photopass CD so I can print my own for pennies, so not seeing the value of the freebie now.

Why would closing an account I'm not using hurt my credit? Wouldn't it show I was being responsible in not having more credit access than I need? If it's a debt ratio thing only then I don't have to worry...my main credit card has a $25,000 limit and we pay it off each month, and probably charge less than $2-3k on it each month anyway. So my debt ratio would be either zero if they look at balances or at about 10% if they look at monthly average. Right?

I don't even have a clue what my score # is......so maybe I'm over thinking this anyway, and we have no big purchases planned in the foreseeable future anyway. But a part of me is curious and a part of me says I probably want to protect my rating anyway I can.

 

[DisneyMissy318]

We are set to close on our selling our house in the next month. Part of the proceeds will be used to pay off our CC debt. 3 cards with around $2500 on each. Since we will be seeking a new mortgage in less than 6 months - what is the consensus with these cards - leave open with zero balances - or close out? We have another card with a higher limit and plan to just keep that one. Any advice? Thanks!

 

[belle&sebastiansmom]

I say don't close it. And if you use it, pay it off. My husband had a lot of small cards way back in college opened for things he couldn't afford to pay outright, like a department store card, a jewelry store card (at least I got my ring! haha), a home improvement store card, etc. He would use these once or twice, eventually pay them off, then never use them again. When we got married he thought the best thing to do was to close them all. He did, and it damaged his credit score considerably. If would have been better for him to put the cards in a cup of water and freeze them, then to cancel them.