Credit Cards - Gove me a good reason to keep accounts open

[averagedad]

I have been on a financial journey for about 12 years now, and Credit Cards have been a part of that every since. I am trying to determine the best way to go forward from where I am as far as CCs go. If you want to read the whole story of my situation, You can find it here:

(I was going to link to it but it tells me I can't...not even to here. Just look under my threads for the one titled "Here's My Story")

A few Facts: My wife and I have never been late on a payment. Although we have carried a balance and at times had to pay only the minimum due, we have never been late. The store card mentioned in that story above will be paid off and cut up. No reason to keep that account open, regardless of the ding to our credit.

In the beginning, I got a card through Capitol One right after I turned 18. I did this to start my credit, because no family members had any credit to cosign with me or / would not do so if they did. This started my credit. I initially had a $200 limit. Over the years it went up a little at a time to $3500, where it has been for at least eight years.

I am married, and we got my wife a CC through Capitol One after we were married to start her credit. She had no credit either, and was pretty much in the same situation I was. Hers started out with a very small limit as well.

My card has had a balance up to the full $3500 limit and carried for a while before being paid off in full at least three times. It currently has a balance of about $2700.

My wife's has been used up to the $5000 limit and carried that balance for a number of months before being paid off at least twice. It currently has a balance of $180 or so.

In short, I can't decide whether or not it would be beneficial for me to keep the accounts open or close them. At numerous times, we have had these cards where they had a $0 balance for sometimes a year or more. I can actually remember not paying a bill every month because the cards had a $0 balance. It was suggested to me in the other thread to cut the cards up, and not use them at all once they are paid off. Although it is has not happened to me, my concern is that they will eventually close the account because of lack of use and no money is being made from us.

That brings me to my next point. I need a good reason to even have the accounts open. In April of this year, we bought the house we will likely never move from, and I will never get another auto loan again. My plan is to pay cash from here on out. For some reason though, Even after paid off, I still see those accounts as a possible crutch, or source of emergency money. I know there is no reason to think such, once we get that same amount of money saved up in savings though, but I am likely looking at a long time away.

Another comment that was made in my thread was that we obviously don't know how to use CCs correctly. I am ignorant, and so I must ask - what is the correct way to use a card? I know that step 1 would be that if I actually did use it, to pay it off in full every month. But other than that, what else does this mean?

So,

1. I need good reasons to actually have these accounts. I have read that a good credit score is good for several things, not just my ability to get a loan or borrow. As someone else mentioned, I may want to refinance one day. I could see this as a possibility.

2. What is the correct way to use a CC? How should I be doing it?

3. As viewed in the other thread about credit limits; How exactly does one get a limit on a card so high? I saw several limits in that thread of $20k+. I would not want a limit like this under any circumstances or need it, but I am wondering how it is possible? Like I stated earlier in this post, my card has been at a $3500 limit for about eight years. I can remember calling on several occasions and asking for the limit to be raised, and was denied every time. Is it the card issuing company, or is it my history of carrying a balance? It just doesn't make sense. It would seem to me that the people they would give the high limit to would be the ones more likely to carry a balance, not the ones who never do. More balance being carried means more money for them....

4. CC company loyalty. I am old school I guess, and I feel like if I have been a customer of a certain person for some time, I would be treated better. I know this is not the case with CC companies, but nonetheless, I have been with Capitol One for a long time. It is the only card I've ever owned (my wife is the same way). If I make the decision to move the balance to a 0% card company to aid in paying off the debt, I'd leave the Capitol One card account open, even though it would have a $0 balance. I would not close it because I know that could hurt my credit (Assuming this post produces some good answers on why I should keep my credit).

5. Cards with rewards. Someone also mentioned that the rewards are what I should be focusing on. I have no idea about any type of rewards. The only thing I have ever seen is things like airline miles. Maybe some with cash back, which I have no idea how that works, and if it would even be worth considering. In short, We don't travel on planes. I have never even been on a plane to fly anywhere. If I am going to be using the cards and getting some sort of reward, it is going to have to be something worth my while.

Please enlighten me.

[JulieAlbright]

Keep the cards open, but get them out of your wallet and do no use them except in the most dire of circumstances.

Right now you do not have a good financial cushion built up and your credit access is pretty much your emergency fund. As was discussed on your other thread, you don't have a good enough handle on your budget now that you are planning for emergencies, or even events like … unplanned car repairs. That's why you those balances keep creeping up on you after you pay them off.

After you stick with trying to control all of your money for a decent time period, you'll find your budget naturally evolves where you start thinking about more than just the month to month routine spending. Once that happens you'll be able to plan and save for the big things, and open credit lines become of minor importance.

I know you say right now you'll never move, never need another car loan etc etc - and I hope for all of that and more for you. But I've been bounced around enough in my own life by the unexpected that I've learned "I'll never" is really more of "I hope I never." You just don't know.

[averagedad]

I know you say right now you'll never move, never need another car loan etc etc - and I hope for all of that and more for you. But I've been bounced around enough in my own life by the unexpected that I've learned "I'll never" is really more of "I hope I never." You just don't know.

This I agree with 100%. I should have clarified. I hope, we never have to have a brand new vehicle off of a car lot or another one with a loan, and I hope we never have to move again.

I do all my own vehicle maintenance and work, so not really scared of repairs. I only dislike the inconvenience and cost of parts, because some can be pretty expensive.

[snafu]

averagedad, I understand and admire an your views but believe business thinking has become much more predatory. Just now, it's fantastic if savers get 2%, while food costs are up 5%. Quantitative Easing have bankers awash in money while people using revolving credit are paying 7% - 22%. Their customers could manage their finances if the credit grantor would reduce interest rates slightly. If a creditor messes up dates and pays a few days late a few times, interest rates jump. Can you imagine paying 22% on your $ 3,500. balance? Only if the person ruins their credit score by missing 3 or more payments is there any possibility of interest rate adjustment. It doesn't just affect that CC, suddenly car loan rate is higher, rental agents decline your application and worse of all, employers check credit scores and reject otherwise qualified candidates.

I think it's smart and convenient to use other people's money via CCs. I'm aware of the closing/billing date of each of my CCs and their due dates to time major purchases to take advantage of that time frame. I don't buy if I can't pay the total bill two business days before it's due. Since retailers pay a transaction fee for CC access, I've offered to pay cash for a discount or delivery for example.

The different cards offer different benefits to lure client loyalty. I hope you'll look at cash back program details. 0% interest for 15 months can be attractive in revolving credit for those who are disciplined. Several participants here sign up for cash back offers by charging a major sum in the required time frame. They only ever charge items they would buy/use anyway and carefully track the amount and pay without incurring any fee or interest. Others rebate 2% - 5% at certain points for grocery purchases, gas, automatic repeatable like cell phone.

You've helped me realize that my wish to be helpful is lost without diplomacy

[autoxer]

Regarding the old accounts, there isn't really much benefit to closing old credit card accounts, so if you want to stop using them, just cut up the credit card into pieces and throw it out. If carrying a credit card influences how you spend money, then you may want to avoid them for a while. Freeze them in a block of ice, so you have to think for a little while before swiping the card. That might be enough time for you to avoid the impulse and decide the purchase isn't that important.

2. What is the correct way to use a CC? How should I be doing it?

To get the most benefit, with the least cost it is fairly simple.

Never carry a balance. Before you charge something, make sure you will be able to pay it off before the due date. Avoid paying interest, their interest rates are terrible.

5. Cards with rewards.

Rewards cards are nice, but the rewards will be dwarfed by any interest payments, so take care of #2 first.

There are so many different types of reward cards, but my favorite is just cash back. I'm trying to get back the cash that I paid in interest in my younger years. I also tend to avoid any credit card that has an annual fee on principal. Check out http://www.magnifymoney.com/compare/cashback-rewards, to see some of the better options. The rewards programs tend to change, so if you really want to maximize the reward, you might revisit it every year or two.

[JohnM.Hendricks]

If you don't have any other cards, it is not a great idea to close your credit card. A big portion of your credit rating takes into consideration the various types of credit you own. If you have no other credit, it is a good idea to keep the only one you have open.

[LuckyRobin]

One advantage to keeping a credit card open is that it makes it easier to travel. Almost all hotels require a credit card for a reservation. You can still pay for the hotel with cash, but they won't make the reservation without the card. Or if you need to rent a car while on a trip, though you can pay in cash, they often require a card to hold the car. If you want to buy a ticket to fly, while you can pay in cash, you either have to go to the airport in person or use a travel agent to purchase and paying cash for a ticket can raise all kinds of red flags with security. Some airlines allow you to use a debit card online, but not all do.

[doingitallwrong]

I mentioned in the other thread some of the benefits of having credit cards and a good credit score, and some others have been mentioned here, so I won't repeat.

2. What is the correct way to use a CC? How should I be doing it?

It really is as simple as paying off the statement balance every month before the due date. Don't use your CC for emergencies, for splurges, for luxuries -- use it for items you had already planned to buy and could pay with cash if you wanted to. Stop thinking of credit card funds as "not real money" -- that is one advantage of a bank account 'check card'; you use it just like a credit card (it has a Visa or MC logo) but the money comes right out of your checking account, so you can't overspend.

3. As viewed in the other thread about credit limits; How exactly does one get a limit on a card so high? [snip] It would seem to me that the people they would give the high limit to would be the ones more likely to carry a balance, not the ones who never do. More balance being carried means more money for them....

It used to be a lot easier to get a higher limit even with questionable credit. The reality, though, is that for a lot of people the more credit they have available the more they're going to use, and at some point they'll go over the tipping point and will no longer be able to afford their monthly minimums (much less pay extra or pay off their cards). A significant portion of your credit score is based on your credit utilization -- the percent of debt you're carrying vs. the percent available to you. Less than 30% utilization is good, and I believe less than 10% is ideal. (Keep in mind that a credit score looks at your current balance -- it won't see that you have a $3,500 limit on your card, charge $3,000 and pay it off every month. If it looks at your credit when your balance is $3,000, it will see that you're utilizing 85% of your credit.)

Personally, I've had a couple of recent credit increases. Both are on cards that were near their limit, one I was paying the minimum and the other was my 'everyday' card that I pay off monthly. I don't exactly know why they decided to increase my limits, but being near the limit seems to be a factor. (I don't recommend that route, unless it's a card you're paying off all the time, of course.)

4. CC company loyalty.

Again, this just doesn't exist in the reverse -- hasn't Capital One already proven it by refusing to even work with you until you're behind on payments? I had a few Chase credit cards that I was current on payments, but we had some 'life changes' and when I called them to ask for assistance, they set me up on a 'hardship plan' and cut my interest rates by 16-20%. That's customer loyalty, IMO, and so Chase gets a significant portion of my financial business. (Another company that worked with me was Citi, which honestly surprised me a bit.)

5. Cards with rewards.

This is IMO the best reason to use a credit card. Of course you have to be committed to using it properly and dedicated to not paying interest before you start on the rewards card route. Once your credit is good, you're out of debt (except your mortgage), and you're pretty much automatically approved for any credit card, you can really capitalize on rewards. You need to be organized to keep track of it all, especially the cards with rotating 'high' rewards. I may have mentioned visiting the blogs here to see how various people use CC rewards. Personally, I'm not quite at the point where I can (or want to) open and close cards just to get the rewards. I have one rewards card that I use for my everyday spending, that gets paid off before the due date so no interest accrues. (I am carrying a balance on the card pretty much at all times, because of the way the due dates work, but I'm not paying interest.) It's a cash-back card but there's also a "rewards center" where I can use the points to get merchandise, hotel stays, travel rewards, etc. So far this year I've earned $785 in rewards and will certainly pass $800 by next month. It's actually not much, in the grand scheme of the CC rewards game, but it's still $800 free money.