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just curious-why does getting rid of credit cards hurt your credit rating?
Credit rating is based upon several things. One of which is the amount of available credit that you have. Lets say that you have five credit cards and each card has a $5,000 credit limit. If all five cards were paid off you would have $25,000 in available credit. That is something that looks good when your credit is checked. It helps to increase your credit score.
Lets say though that you do have a maxed out card and partial amounts on the remaining cards. Infact lets say that you have $10,000 in credit card debt. You would still have access to $15,000 in credit card debt, which gives you a ratio of 60/40 available credit to debt load on your cards. You are still in the driver seat. Still you feel that $10,000 in debt is bad and you want to pay it off. You transfer your debt from the other cards to one card maxing that card out, meaning that you now have 2 maxed out cards. You also decide that you have little control on your spending so you decide to protect yourself and cancel the other cards that you are not using or can pay off quickly. So now you are left with the two maxed out cards.
Instead of having $15,000 available credit you now have no available credit. You are now a credit risk. Sure your plan is the responsible thing to do, but the credit reporting agencies see it differantly. What they see is that your available credit has dissapeared. You went from having 60% of your credit available to you, to having 0% of your credit available to you. The debt load never changed, but the availability of credit did change.
Other factors weigh in but the amount of credit that is available to you is one of them. The best thing to do is to keep the cards open, pay them off and use them from time to time. Also watch what you purchase with the cards. If you are using them to buy food that can be a negative. If you are using them at an expensive resteraunt that may be OK. Just don't use them at McDonalds or some place similar. Your purchases are another thing that affects your score, but that is a post for another thread. LOL
No doubt that there are valid reasons to have a credit card and/or debit card.
Sounds like a great cure for "impulsive spending" which amounts to most credit card debt by the majority of American's.
You must be mistaking me for a anti-credit card fanatic. I'm not. I see nothing wrong with having a credit card for the benefits of buying gas and reward points, ect. I do know that you spend less if you use cash and are less impulsive when making purchases.
I just do not buy into the argument that a credit card is great for emergencies. Those emergencies usually, again for the majority of people, turn into a new couch purchase, purse, or something that could be classified as a impulsive emergency gotta-have-it-now or that ski trip you just gotta take.
If you make that emergency fund out of cash, in the bank(!)-(accessable via debit visa?), from the sweat of your brow.. you will think twice before taking it all out for something that is not truly a emergency. It's a mindset. Credit cards give the feeling of "Free" money while money you saved up was something you watched grow from a small $1 to $20,000 or whatever you think would be needed in a emergency.
I am with you on this. Everyone needs an emergency fund. I remember needing tires for the car and putting them on the card. Why is that? We know that tires wear down. Isn't it better to save up and have the cash sitting there available? We know that an emergency will happen. The thing is that an emergency becomes an emergency because we are not prepared for it. I have to eat every day. If I didn't have food or money for food then I have an emergency on my hands. I have to pay my mortgage. If I don't have the cash that also becomes an emergency.
So many emergencies can be avoided if we would just put a budget together and realize that things wear out, things become outdated, and we have to pay to live.
I haven't had a credit card in 5 years and I don't miss it.
I don't care about maintaining a good credit rating either. If I don't have cash, I don't buy it. Simple.
My grandpa was so right.
No fault there. Our office coordinator filled us in on a conversation her mom had with a bill collector. She was disputing the bill saying it wasn't hers. The bill collector was telling her she had to pay it anyway.
She asked him what would happen if she didn't pay the bill.
The bill collector said it would mess up her credit. She would not be able to get another credit card, She would not be able to finance a car. It could hurt her when she tried to buy a home.
She then informed him that her house was paid off and she had no intention of buying another. Her last car she paid cash for and if needed she had the cash to pay for another car. She never used credit cards and paid everything with cash. She then told him that it seemed to her that his threats were empty as she was covered in all the areas that seemed to be a problem. She then told him that she still didn't believe that the debt was hers as she always pays cash and she could care less what he thought because he couldn't do anything to her that would hurt her financially.
The bill collector never called back again. Now saying that, it never seemed to be her debt in the first place, but the story was still funny to me.
Good story. By saying I don't care about my credit rating, I didn't mean that I shirk on all my bills, lol, but you got me thinking now
I meant that I wouldn't keep credit cards active simply to maintain a credit rating. I know myself well enough, that I might be tempted to use it for 'emergencies'. I used to have a couple grand in credit debt, it took forever to pay off and in the end seemed so anti-climactic..
One great thing about Europe is that people generally don't have credit cards. I've been living here for a few years and it's taught me a lot about the value of money. Also people here rent and not own, owning a home is not considered the ultimate dream like it is/was in America. With that in mind I think I won't be buying any real estate in the US for a good while. I'm glad/lucky I didn't get sucked into a place in the 00's but I was certainly tempted.
an emergency to me is unexpected. Yea, you know your tires are going to need replacing soon so not an emergency. You don't know that the car is going to break down miles from home so, imo, emergency.
Fido needs shots-expected; pay cash. Fido decides to have discussion with a porcupine, emergency.
Europeans have insurance for nearly everything under the sun. Renters insurance in case your wash machine breaks and spills water all over the bathroom, personal property insurance in case you spill coffee on your laptop, legal insurance in case you get sued, pet insurance, etc.
I lived with someone, his cats pissed on my bed. His insurance reimbursed him 200 euro for the new mattress I made him buy me.
Americans think they need to have credit cards. It's a mentality that's drilled into our minds from a very early age. That a 19yr old college student can rack up 10s of thousands in credit card debt, it should not be allowed in my opinion. But to each his own....
I don't know how they work it in Europe but I think insurance agents here disappear at 5 pm friday and reappear Monday morning. Unless it's a holiday of course.
and from what you're saying, their mindset is to insure everything under the sun.
OK Right, of course. I thought this was a discussion forum where constructive ideas are presented. Sounds like you're looking more for a pity party. Forget about insurance or the idea of living credit-free. You better stick with credit cards. Good luck digging yourself out of a poor man's grave.
OK Right, of course. I thought this was a discussion forum where constructive ideas are presented. Sounds like you're looking more for a pity party. Forget about insurance or the idea of living credit-free. You better stick with credit cards. Good luck digging yourself out of a poor man's grave.
I'm one of the biggest proponents of insurance you'll meet.. I even have an umbrella policy to cover the stuff my renter's insurance doesn't get to. But if you're young and trying to live in an expensive area on a shoestring, insurance can't replace credit.
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