Author Topic: Credit Cards and Credit Score  (Read 2958 times)

sisyphean

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Credit Cards and Credit Score
« on: February 26, 2016, 08:07:43 AM »
I'm very new to this and have lived my life as a 'buy all the things' type of guy. I live in Oklahoma, so everything has been cheap and have lived with roommates my life. All my extra money went to DVDs and crap. Anyway, I'm in the process of getting debt free. I have 3 credit cards - debt/limit ($700/$1000, $1800/$2700, $900/$1500). My main question is this: When I pay them off, should I close them? I feel like I need a failsafe in case something bad happens and I need $1000. Or is this just going against the Mustachian values?

Closing cards usually drops credit score. Paying off will increase it a lot though. Should I not even worry about credit score anyway?

Sorry if this is a super basic easy question. I'm a baby mustache.

Catbert

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Re: Credit Cards and Credit Score
« Reply #1 on: February 26, 2016, 09:25:01 AM »
Pay them off then use them lightly (not more than 30% of limit) and pay off monthly.  No reason to get rid of credit cards if you use them responsibly.


aFrugalFather

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Re: Credit Cards and Credit Score
« Reply #2 on: February 26, 2016, 09:29:44 AM »
Pay them off then use them lightly (not more than 30% of limit) and pay off monthly.  No reason to get rid of credit cards if you use them responsibly.

This

catccc

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Re: Credit Cards and Credit Score
« Reply #3 on: February 26, 2016, 10:30:00 AM »
Pay them off, and if you can use responsibly going forward, see if any of them have a decent rewards programs, or if the issuing bank has a card with a decent reward program to which you can convert your current card(s).  This only works if you have spending under control.  We budget closely and put everything on CCs, then pay off entire balance at end of month.

While you are working on paying them off, you might even want to ask if they can increase your limit w/o a hard pull (reduce utilization %) while you pay them off, if you are working on your credit score.

GizmoTX

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Re: Credit Cards and Credit Score
« Reply #4 on: February 26, 2016, 11:05:30 AM »
These days your credit score matters, & having some credit can function as an emergency fund. If you travel, you need a credit card. Pay them off as fast as you can, largest interest rate first. Don't close them until & unless you have replaced them with a better rewards program. The age of your accounts also counts; if you've had one for many years & it doesn't charge an annual fee, it's worth keeping. Your score will go up as your utilization ratio goes down -- a higher credit limit helps this as long as you don't spend more than you can pay off in full each month.

Axecleaver

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Re: Credit Cards and Credit Score
« Reply #5 on: February 26, 2016, 12:20:00 PM »
A part of your credit score is based on how old your oldest revolving credit line is. I made a mistake by closing a credit card I had since college, because they raised the APR to 19%. I should have just left it open and never used it.

But, if you keep your oldest card open, the other ones aren't really doing your credit score any good. Keep your oldest and your "best terms" card around, put the oldest away and use the best terms card, then pay it off every month.

katsiki

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Re: Credit Cards and Credit Score
« Reply #6 on: February 26, 2016, 12:30:37 PM »
Great advice so far.  Another option might be to cut up 2 cards (leave them open) and put the third (best card) in a container of water in your freezer.  You won't be able to get at it for a bit and that might help with impulse purchases.

sisyphean

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Re: Credit Cards and Credit Score
« Reply #7 on: March 01, 2016, 07:32:09 AM »
Thanks so much. I don't really have a problem with impulse purchases anymore after being dead broke and in debt. After they are paid off and really low utilization for a while can I ask for a decrease in %? I think 2 are around 13% and one is ~20%, which would be nice to drop.

GizmoTX

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Re: Credit Cards and Credit Score
« Reply #8 on: March 01, 2016, 12:26:00 PM »
After you pay off your credit card debt, you shouldn't care what the APR % is -- NEVER pay the interest or penalty anymore!

mountainstache7

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Re: Credit Cards and Credit Score
« Reply #9 on: March 01, 2016, 02:06:40 PM »
This. Pay the balance every month.

After you pay off your credit card debt, you shouldn't care what the APR % is -- NEVER pay the interest or penalty anymore!

Once you get the ship righted, explore all the rewards programs out there. My current endeavor is working on travel hacking. http://www.travelmiles101.com/travel-rewards-course-registration

I believe both of these guys are members of this forum too as that is where I found this site in the first place :)


Dezrah

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Re: Credit Cards and Credit Score
« Reply #10 on: March 02, 2016, 05:29:45 AM »
All good advice so far.

I will add that you should consider was your future plans are?  Do you expect to need good credit in the future?  Will you finance large appliances, vehicles, a business?  If a house is your only potential future debt, you could probably just focus on keeping your cards paid off and forget credit scores entirely.

I used to play the credit score game: constantly monitoring my debt/credit ratio, increasing my limit, trying to guess if it was the right time to open a new account, etc.  I stopped when I heard that SoFi* was doing away with using a FICO score as a baseline for mortgage approval.  They still care about your credit HISTORY, but mostly they're trying to look at if you're a safe bet (good income, reasonable house price, responsible on time payments, etcetera).  Except for my future mortgage, my credit score is effectively meaningless. 

I'll continue to pay my bills on time, in full, while leaving plenty of credit for a real emergency, but I'm done with the micromanaging just for the score.

*Not a shill

sisyphean

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Re: Credit Cards and Credit Score
« Reply #11 on: March 02, 2016, 02:05:18 PM »
For my future I'm going to build a metal building house probably for about $100,000 counting furnishings and whatnot. New car every 10 years. That's it. No family, no crazy hobbies or anything, just house loan. I guess the score won't go down if I have 3 cards that won't have been used in 7 years or so. Thanks so much peeps.