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I have a quick question. I am getting ready to get a new car and I have already been approved for a auto loan through my credit union. With that being said, I want to curtail my credit card spending. I have 3 main cards that I do use on a regular basis and several store credit cards I never use. Now if I got a new credit card and cancelled the rest of them, would that hurt my credit? Could it affect my approved auto loan? Is this something I should worry about after I get the car?
I never found it to be correct. I've used only 1 credit card for years and my credit rating has always been stellar. But I've also been very responsible with my finances, never late with my bills, always paid my cc balance in full every month, etc. I mainly use the cc to collect points for free travel.
If you want to be safe with your upcoming autoloan, sign the loan first, wait a few months, then cancel your credit cards. As long as you continue to be responsible with your finance, your credit rating will continue to reflect that.
Just don't close them both at once, for whatever reason the credit agencies see that as a minor red flag. Close one, then wait for 6 months or so to close the other one.
In the end, the minor and I mean MINOR credit hit you'll take by closing out two credit cards (the very WORST credit you can have) is well worth forcing yourself into using them less and less for spending. If you have an issue with putting too much on your cards then losing the ability to do that far outweighs a few points taken from your FICO score.
Leave the one open that has the lowest fixed interest rate.
I never found it to be correct. I've used only 1 credit card for years and my credit rating has always been stellar. But I've also been very responsible with my finances, never late with my bills, always paid my cc balance in full every month, etc. I mainly use the cc to collect points for free travel.
If you want to be safe with your upcoming autoloan, sign the loan first, wait a few months, then cancel your credit cards. As long as you continue to be responsible with your finance, your credit rating will continue to reflect that.
using or not using a credit card vs closing out a card with longer term credit history are two different things
Length of credit accounts for 15% of your score. If you cancel all your cards after you get the new one then you have essentially set your length of credit history (for cards) to zero. I suggest you wait a few months (6 or so) after you get the car then apply for the new card. Once you have the new card I would continue to use one of the other 3 cards at least once a month. Maybe rotate them in and out. Once you have a year or so of new history built up with the new card then I would start cancelling the others 1 at a time (maybe 4 to 6 months apart).
Also you should be aware of your credit utilization ratio. If you go from 3 cards that have $5,000 limits to 1 card with a $5,000 limit then your utilization ratio will go up assuming you still use the card(s) for the relative same purchase amounts each month.
using or not using a credit card vs closing out a card with longer term credit history are two different things
Quote:
Originally Posted by Grumpty
Length of credit accounts for 15% of your score. If you cancel all your cards after you get the new one then you have essentially set your length of credit history (for cards) to zero. I suggest you wait a few months (6 or so) after you get the car then apply for the new card. Once you have the new card I would continue to use one of the other 3 cards at least once a month. Maybe rotate them in and out. Once you have a year or so of new history built up with the new card then I would start cancelling the others 1 at a time (maybe 4 to 6 months apart).
Also you should be aware of your credit utilization ratio. If you go from 3 cards that have $5,000 limits to 1 card with a $5,000 limit then your utilization ratio will go up assuming you still use the card(s) for the relative same purchase amounts each month.
Quote:
Originally Posted by mathjak107
closing credit lines can hurt you . there is a balance between to much open and not enough.where that point is ,is a secret.
just stop using them or cut them up .
The advice above is mostly solid, I can elaborate a bit. I have friends who work for one of the major credit bureaus (not the one that had a security breach ... ) and the firm is working to get more info out about the best way for folks to use credit. This is a response to some trends with loud mouth radio preachers acting like borrowing was invented by the devil himself as well as other trends like decreased car ownership among certain demographics...
Your payment history makes up 40% of your score, while credit utilization is 20%. The length of your credit history contributes 21%, and total amount of recently reported balances 11%. Finally, new credit accounts are responsible for 5%.
What they don't want to exactly say is that "payment history" or how often you've paid interest is something that is ATTRACTIVE lenders -- they LIKE customers who pay interest! What is completely accurate is that late payments reduce your score, even those that too makes the lender money, BUT it is indication that you do not BEHAVE like a responsible borrowing and MIGHT get in over your head...
Quote:
Your payment history is the most important aspect of your credit score, because it shows how you’ve managed your finances, including any late payments.
Transunion explicitly address the issue of "closing accounts" --
Quote:
This credit myth advocates closing old and inactive accounts to hike up your score. However, this might inadvertently have the opposite affect and lower your credit score because now the credit history appears shorter. If you don’t trust yourself to put a card away in a safe place and not use it, then consider canceling newer accounts.
They do, as mathjak suggest, keep some details obscure, but empirical examination shows that any information older than 12 years is not really a factor, SO if you have several accounts that have been active for at least that long AND closing them will not change your credit utilization it is safe to do so. The fact is credit utilization is increasingly important in the behavioral realm -- if you have lots of credit and you do not use much of it is a highly correlated with having a good sense of what you can afford and suggests that you will not overspend and screw over the lender with a bankruptcy. If you have lots of credit and frequently max it out it is bad sign that you over spend, though it might just mean that you should ask for a credit increase, especially if you rarely do other than pay off your spending in full every month...
The last point that I want to highlight from the transunion site is a pretty big myth too:
Quote:
Paying off a debt boosts your score by 50 points.
Contrary to this credit myth, credit reporting agencies companies determine your credit score via a complex algorithm that uses hundreds of factors and values to calculate it. It’s almost impossible to calculate the difference in points changing one factor might make. It’s wise to pay your bills on time, work to lower your debts and ask that any inaccuracies be corrected. A proven record of sound financial behavior and time will have the most significant impact on your score.
https://www.transunion.com/article/credit-score-myths
The fact is that ENORMOUS numbers of transaction records flow through the credit reporting agencies and they are ALWAYS looking for ways to use their systems to tweak the scoring process to help their primary customers WHO ARE THE LENDERS and if they can help the lenders find more ways to make money they are good. That means that anything SIMPLE like merely paying off ANY open credit line is not by itself an indication of anything -- maybe the borrower won some cash in an illegal dice game, that won't make them a better credit risk! The more consistent the data is the more accurate a picture is painted -- in the case of the OP they really should ask "does keeping the credit cards but not using them prove I have self control" ? I tend to think it will. Having credit available but untapped is generally a good thing. The obvious exception is when you are doing something like applying for a mortgage and you are carrying so much debt (especially on a big car loan or huge student loans) but have a whole pile of untapped credit cards which if you max them out tricking out the new home with furnishings that your new debt ratio is unsustainable the lender may prefer to see smaller amount of unused credit... Of course for MOST borrowers the lending decision is happening on JUST the scores and they only time that they dig into the details is if your fall outside the "norms". Even then, if you have enormous debt from school but are a surgeon or employed in other high paying field the "manual review" will likely clear things up...
I would also caution that for things like car loans, that folks are increasing borrowing for longer than three years, any change in the mix of credit you have should be considered over years and not months. That means you can "plan ahead", a good sign that you will use credit responsibly -- that includes occasionally borrowing so that lenders make money!
Maybe. Your score includes credit utilization and average length of credit. Cut the third up but do not cancel unless you have to pay a fee to keep the card.
You could help your score by asking for increased credit limits on the cards you keep.
The advice above is mostly solid, I can elaborate a bit. I have friends who work for one of the major credit bureaus (not the one that had a security breach ... ) and the firm is working to get more info out about the best way for folks to use credit. This is a response to some trends with loud mouth radio preachers acting like borrowing was invented by the devil himself as well as other trends like decreased car ownership among certain demographics...
What they don't want to exactly say is that "payment history" or how often you've paid interest is something that is ATTRACTIVE lenders -- they LIKE customers who pay interest! What is completely accurate is that late payments reduce your score, even those that too makes the lender money, BUT it is indication that you do not BEHAVE like a responsible borrowing and MIGHT get in over your head...
Transunion explicitly address the issue of "closing accounts" --
They do, as mathjak suggest, keep some details obscure, but empirical examination shows that any information older than 12 years is not really a factor, SO if you have several accounts that have been active for at least that long AND closing them will not change your credit utilization it is safe to do so. The fact is credit utilization is increasingly important in the behavioral realm -- if you have lots of credit and you do not use much of it is a highly correlated with having a good sense of what you can afford and suggests that you will not overspend and screw over the lender with a bankruptcy. If you have lots of credit and frequently max it out it is bad sign that you over spend, though it might just mean that you should ask for a credit increase, especially if you rarely do other than pay off your spending in full every month...
The last point that I want to highlight from the transunion site is a pretty big myth too:
https://www.transunion.com/article/credit-score-myths
The fact is that ENORMOUS numbers of transaction records flow through the credit reporting agencies and they are ALWAYS looking for ways to use their systems to tweak the scoring process to help their primary customers WHO ARE THE LENDERS and if they can help the lenders find more ways to make money they are good. That means that anything SIMPLE like merely paying off ANY open credit line is not by itself an indication of anything -- maybe the borrower won some cash in an illegal dice game, that won't make them a better credit risk! The more consistent the data is the more accurate a picture is painted -- in the case of the OP they really should ask "does keeping the credit cards but not using them prove I have self control" ? I tend to think it will. Having credit available but untapped is generally a good thing. The obvious exception is when you are doing something like applying for a mortgage and you are carrying so much debt (especially on a big car loan or huge student loans) but have a whole pile of untapped credit cards which if you max them out tricking out the new home with furnishings that your new debt ratio is unsustainable the lender may prefer to see smaller amount of unused credit... Of course for MOST borrowers the lending decision is happening on JUST the scores and they only time that they dig into the details is if your fall outside the "norms". Even then, if you have enormous debt from school but are a surgeon or employed in other high paying field the "manual review" will likely clear things up...
I would also caution that for things like car loans, that folks are increasing borrowing for longer than three years, any change in the mix of credit you have should be considered over years and not months. That means you can "plan ahead", a good sign that you will use credit responsibly -- that includes occasionally borrowing so that lenders make money!
there are 55 different fico scores available alone so the percentages of what makes up your score vary by industry and fico score type..
also certain fico scores do go back longer than 12 years . in fact one told me out right my oldest line was 24 years and at 25 years that is the highest you can get on that portion . points came off under 25 years .
fico 8 counts credit cards heavy but little of other debt . fico 9 does not even count medical debt .
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) and the firm is working to get more info out about the best way for folks to use credit. This is a response to some trends with loud mouth radio preachers acting like borrowing was invented by the devil himself as well as other trends like decreased car ownership among certain demographics...
