Trying to improve our credit

[Ruthie5671]

Ugh - financial questions make me nervous! But I know that there are several smart folks on this board and all advice is appreciated!

DH and I are working on improving our financial situation. At the beginning of last month, I wrote down all of our monthly bills and how much we spent each month. Then I wrote down our income each month. It was shocking to say the least. Of course, we spend about $200 more dollars each month than we take in. So I know how to attack that. CUT, CUT, CUT!!!

Here is what I'm confused about. Our individual credit scores are pretty low. Lots of years of bad decisions have definitely caught up with us. So as we pay off credit cards, is it better for our overall credit score to close the account or have an open account that is completely paid off? There won't be a question of using the accounts again, because I'm going to cut the cards up. But I want our credit score to look as positive as possible.

Any other credit improving suggestions are also appreciated!

 

[Firefly09]

How many credit cards do you have and how long have you had them?

Closing credit cards can also lower your credit score for several reasons: utilization ratio will go up if you close accounts as you pay them off because those lines are credit will be removed from your record, the age of your credit lines can also decrease if you close your older accounts.

I always recommend having at least 1 or 2 credit cards to have in case of emergencies, to use for when credit cards are needed like renting a car. Keeping them open and using them every so often and paying them off in full will also help your credit.

Also keep in mind, if you start to close accounts, try to keep one that is yours primarily and one as that is your husband's so that if anything should happen and the other person's account gets closed you don't lose all your credit history.

 

[Marionnette]

Ugh - financial questions make me nervous! But I know that there are several smart folks on this board and all advice is appreciated!

DH and I are working on improving our financial situation. At the beginning of last month, I wrote down all of our monthly bills and how much we spent each month. Then I wrote down our income each month. It was shocking to say the least. Of course, we spend about $200 more dollars each month than we take in. So I know how to attack that. CUT, CUT, CUT!!!

Here is what I'm confused about. Our individual credit scores are pretty low. Lots of years of bad decisions have definitely caught up with us. So as we pay off credit cards, is it better for our overall credit score to close the account or have an open account that is completely paid off? There won't be a question of using the accounts again, because I'm going to cut the cards up. But I want our credit score to look as positive as possible.

Any other credit improving suggestions are also appreciated!

Closing a card will affect your debt-to-credit ratio. It's better to keep the cards open and unused than it is to close those cards. This is especially true if you've had the cards for a long time.

You can improve your credit score by paying down that debt as quickly as possible in order to minimize your debt-to-credit ratio.

And make sure that you pay on time. Early would be even better. Paying late, even if it is within a grace period, gives you the reputation of being a "slow-pay" and will have a negative effect on your score.

Don't open new lines of credit or engage in activities where there will be a hard pull on your credit report. Opening new lines of credit and bank accounts can do this. Moving to a new apartment and having a credit check done will do this. Changing your cellphone carrier can result in a credit inquiry.

Don't change jobs or move. The longer you are employed or stay in one place can affect how your credit is viewed. Supposedly, people who stay at one job and don't move around demonstrate stability. Credit agencies like that.

Check your reports and fix any discrepancies in the reporting. If a credit card was closed at your request, make sure that it hasn't been noted as being closed by the party that issued it.

Good luck repairing your credit. It can be an uphill battle but it's not impossible. Just keep at it and focus on the reasons why you need to accomplish this.

 

[scrapquitler]

Ugh - financial questions make me nervous! But I know that there are several smart folks on this board and all advice is appreciated!

DH and I are working on improving our financial situation. At the beginning of last month, I wrote down all of our monthly bills and how much we spent each month. Then I wrote down our income each month. It was shocking to say the least. Of course, we spend about $200 more dollars each month than we take in. So I know how to attack that. CUT, CUT, CUT!!!

Here is what I'm confused about. Our individual credit scores are pretty low. Lots of years of bad decisions have definitely caught up with us. So as we pay off credit cards, is it better for our overall credit score to close the account or have an open account that is completely paid off? There won't be a question of using the accounts again, because I'm going to cut the cards up. But I want our credit score to look as positive as possible.

Any other credit improving suggestions are also appreciated!

I have always been told that closing them is worse for your credit score than keeping them open. Clark Howard also says that if you keep them open, you should use each of the cards once in a while (like minimum once every six months each card). So he says go fill your gas tank, put it on one of those credit cards and then PAY THE ENTIRE BALANCE FOR THAT CHARGE before the payment due date. That will show good payment history and you won't get charged any interest. That should help your score.

 

[njmom47]

You can also pull a free credit report and at least see what your credit looks like (possible negative marks, any late payments that were reported by creditors will show, etc). It does not show your credit score.
https://www.annualcreditreport.com/cra/index.jsp

 

[chimilady]

Why are you concerned about your credit score? Are you looking to buy a house? Because if that is your goal, then absolutely worry about the credit cards. If you're not, then just cut the cards and focus on getting out of debt. If you're a chronic spender, which it sounds like you are, there is no point in worrying about the credit score. You should be focused on cutting the cards and NOT spending money.

What worked for me when I turned my act around, take my card, and freeze in a cup of ice. If you need it, you can get to it, eventually. But there is no quick fix, you either break the ice and your card, or microwave and ruin the card.

I highly recommend you reading Dave Ramsey's Total Money Makeover for budgeting advice and financial priorities advice. Disclaimer: He does not like debt at all unless it's for a mortgage. I think it's important to read all points of view and while I don't adopt everything Dave says, I think his other advice is pretty good.

 

[Zerosinthecloset]

Creditkarma.com has a free credit score and good credit tips. No credit required.

 

[DisneyBill]

You may also wish to visit creditboards.com for tons of discussion on all things credit related.

 

[Mickey1Fan]

I have not read this entire thread but Gail Vaz-Oxlade has great advice as well as budget worksheets. I use the excel interactive budget worksheet.

http://www.gailvazoxlade.com/resources.html

 

[Ruthie5671]

Why are you concerned about your credit score? Are you looking to buy a house? Because if that is your goal, then absolutely worry about the credit cards. If you're not, then just cut the cards and focus on getting out of debt. If you're a chronic spender, which it sounds like you are, there is no point in worrying about the credit score. You should be focused on cutting the cards and NOT spending money.

What worked for me when I turned my act around, take my card, and freeze in a cup of ice. If you need it, you can get to it, eventually. But there is no quick fix, you either break the ice and your card, or microwave and ruin the card.

I highly recommend you reading Dave Ramsey's Total Money Makeover for budgeting advice and financial priorities advice. Disclaimer: He does not like debt at all unless it's for a mortgage. I think it's important to read all points of view and while I don't adopt everything Dave says, I think his other advice is pretty good.

No, we're not looking at buying a house. I'm just doing a full on money makeover for us, and I know that your credit score is important.

 

[Ruthie5671]

Creditkarma.com has a free credit score and good credit tips. No credit required.

Thanks for this site - it has excellent information!

 

[neenersmom]

Like another poster mentioned...check out Dave Ramsey and read the book, The total money makeover. He speaks from experience and has great ideas but its not an easy fix by any means but so worth it!

 

[DisneyEater]

And make sure that you pay on time. Early would be even better. Paying late, even if it is within a grace period, gives you the reputation of being a "slow-pay" and will have a negative effect on your score.

Quick correction. Slow-paying does not have any effect on your score. You have to go 1 cycle delinquent for it to be reported to the agency. That said, it is still a bad idea and can result in fees and the institiution you have the line of credit with will know that you are a slow-pay and will not give you more credit and will even reduce your line which can make getting your utilization rate down a nightmare.

As far as closing accounts...I would leave them open until you get them all paid off to help your utilization rate. Once you have paid them off, consider closing all but 2-3 that you have held for at least 2 years as having too much credit available can also negitively effect your credit worthiness.