Advice on Improving Credit Score

[JohnCPVT]

Hi all,

Newbie on the site, just want to say hello, and hope to get some good advice here from any financial experts..

I won't beat around the bush, my credit history is bad..i checked my score recently and i'm hovering around 550's...the main reason is for late payments on credit cards...I have turned things around and have been trying to re establish good credit..however i did have some questions..any help is more than appreicated:

1. I currently have 5 credit cards under my name with the following limits:

1. 300
2. 300
3. 350
4. 500
5. 2500

#5 was closed out due to lack of payment for 3 months...i am currently paying that off now..

I have open accounts for the other 4...however, none of them offer me any real incentives (i.e. reward pts, frequent flyer miles...etc...) I was thinking of closing #3 and #1 because they both charge me an annual customer fee...but i also heard it's not good to close accounts, as that may reflect negatively on my credit as well...basically my goal is to pay down all my balances, close them out...but i also hear that it's healthy to have revolving credit, with all your cards and to not exceed 30% of each card's limit....I also hear it's not good to pay down the entire balance each month, but to leave a tiny balance remaining? i'm not sure if this is true, but eventually, when my credit is in good standing, i would like to close out all the cards with small limits and eventually get 1 card with a higher limit and that offers points and what not, and go from there....

so my question is, should i close some of them, or keep them open? thanks again for the help.


JP

[Nulink]

Advice

John:
Be careful in how you close your credit accounts, as I have read that closing credit card accounts can impact your FICO score negatively. I would certainly pay the minimun on all the cards EXCEPT the card with the highest interest rate. On that card, I would pay as much as I could realistically pay OVER the minimum until it was paid off. Then I would go to the next highest interest rate card. When I finally got all the cards to a zero balance, I would just leave the cards open with no balance. If I could not keep from using the cards, I would cut them up, but leave the accounts open. You are right about the need for revolving credit, that is why the accounts should stay open

[simpleyme]

it seems your credit cards are not really helping improve your score ,even tho you probably got the cards to improve your score

If this was my situation I would pay off all the cards as quickly as possible(extra job if necessary) close the 2 that have yearly fees after the balance on them is paid

and just use the one that is left paying it off in full every month ,if you find it hard to pay it off every month in full I would stop using it altogether

after a year or so of on time payments I would apply for a card with no fee and a decent credit limit

[vsjhoc]

Does closing accounts hurt your credit score or not?

It depends.

Opitimally, your utilization (ratio of used credit to credit limit) for each account, and for the average of all revolving accounts, should be between 1% - 9%, but definitely under 30%.

If you close an account and have high balances on the other cards, you are increasing your average utilization percentage which can lower your score. If you keep that account open, it is easier to keep the average utilization down and your credit score up.

HOWEVER ... your utilization counts only at the time your credit score is pulled. There isn't any record of utilization, unlike payment history which is recorded each month for years. So if you plan to apply for a mortgage in a year, you don't need to keep balances at 1% - 9% until a few months before you apply.

And to get technical and bore you even more ... that 1% - 9% needs to be your balance on the day that your credit card reports to the credit bureaus. Some report as of the statement date; some report on the 25th of the month; etc. Ask them, and then adjust your payments accordingly. Remember, you don't need to do this until you are actually applying for credit. No need to carry a balance.

If you close an account that's in good standing, it will eventually drop from your credit report. If you leave it open, you can continue to benefit from the good history, provided you pay on time.

The moral of the story is: regularly make small purchases on a few cards, pay them in full and on time. Forget about fine-tuning the credit score until it's relevant.

Good luck!

[SteveM]

Hi, I recently checked my FICO score and one of the points against me was that my average account age is low. It's a good score, but I'd like to get it as high as possible--I will be applying for a mortgage most likley before the end of the year.

One year ago, before learning that average age affects FICO, I signed up for two Home Depot/Citi credit cards. I was only aware of signing up for one but they claim I signed up for two. Anyway, all my other accounts - Amex, Chase, etc. - are older. Would closing at least one of these Home Depot accounts therefore improve my average account age? I've only ever used one of the accounts one time, so it's safe to say I don't need the credit for purchases.

I've calculated - assuming closed accounts are not figured into average age (is this a correct assumption?) - that closing one HD/Citi account would bring my average age from 35 months to 39 months, and closing both would bring it to 44 months.

I realize that closing these two accounts would lower my total credit limit. I do not know whether doing so would counterbalance any FICO improvement caused by increasing average age. I was thinking if that's the case, I could just increase my other limits. Chase has never turned down a credit limit increase from me - they just don't allow me to do it more than every 90 (I think?) days.

Well, any advice would be MUCH appreciated!

Thank you!
Steve M.

PS: I just noticed the above post mentioned that balance percentage is important. My current balance is 5%, and removing the two HD/Citi limits would probably knock it up to 8% or 9%, assuming I don't increase other credit limits. Thanks again.

[dardhel]

All good advice. To sum it up here is what I'd do.

- Close the two cards with a yearly fee.
- Keep the rest open.
- Pay down the entire balance each month, not sure where you heard what you did. It's not worth paying interest.
- Let time heal your credit score.