credit score question

[albionmoonlight]

I understand that the usual caveats apply about getting financial advice from a football-game message board.

That said, my question is narrow and factual, so I am hoping for a narrow and factual answer.

My understanding is that available credit positively affects credit scores. I have also been led to believe that if you do not use a credit card, then the amount of credit available on that card may not be counted toward your "available credit" for credit score purposes.

We have some credit cards that we used for balance transfers back in the day and that now lie fallow. I have two questions:

(1) Are my understandings above correct? If we don't keep using all of our available credit, might it not all be working for us in the best way possible vis a vis credit scores?

(2) If so, how often does a credit card need to be used to be consider "active" for these purposes? I would just as soon not use these cards all the time and clutter up my life. Can I just use one at the grocery every few months and pay off the balance on time? Do I have to actually be using the cards every month? Can I just do it every six months?

Any insight would be appreciated. My google-fu on this question has been thwarted by the eleventy-billion offers for FREE CREDIT REPORTS!!!11!!! that swamp the browser anytime I type in any marginally relevant term.

Thanks a ton.

[Ksyrup]

I'm interested in this, too. I keep reading conflicting information on how excess credit either hurts or helps credit scores. I've got a bunch of open credit lines from past B/Ts too, and the only reason I haven't closed them is partly confusion over this issue and partly laziness.

[MikeVic]

I was told open unused accounts aren't good. If you close a more recent credit card, it'll hurt your score for the next few months but be better overall long-term. If you close an older account, it'll hurt your score even longer.

[gstelmack]

Go to myfico.com and pay the $45 for your 3 credit scores. They will tell you exactly how each account impacts your score, and offer suggestions (like closing specific accounts) to improve it.

There are things like wanting to have a really old credit line around, but excess credit can hurt. Best bet is to do the above and have them tell you what's going on in your situation.

[wade moore]

I know that Consumer Reports had a write-up about this recently. It's hard to find articles vice reviews on their website sometimes, so I couldn't find the exact one.

However, I think this excerpt from an article I did find at least partially pertains to this:

Get rid of excess credit cards

You can survive with just one, or at most two, major credit cards in your wallet. If you pay off your balance each month, for instance, you’re a good candidate for a no-fee rewards card that gives you cash back, air miles, or points good for merchandise based on a percentage of how much you charge each year. If you choose a card issued by American Express or Discover, however, you may also want a MasterCard or Visa, which more merchants accept.

If you carry a balance, select a card with a low, fixed interest rate. In some cases, you might also need a second card. Say you take advantage of a deal to transfer your balance to a card with a zero-percent interest rate for one year. You get that rate only on the balance you transfer, not on new purchases. So you should have a second credit card that you use for new spending.

Dump store cards unless they offer benefits that are meaningful to you. “Interest rates on store cards are usually sky high—around 20 percent,” explains Curtis Arnold, founder of Cardratings.com in North Little Rock, Ark. “But some have perks like free shipping for online purchases, free basic alterations on clothing purchases, and special promotions and savings days for card holders. So if you still shop at a store, it may be worthwhile to keep the card, assuming you can pay off your balance in full every month.”

But before you start cutting up cards, be aware that if you close too many accounts at once, you’ll increase your debt-to-credit ratio and ding your credit score. For example, if you have $10,000 of potential credit and a $2,000 balance, you’re using 20 percent of your available credit. If you cut up a card with a $5,000 limit, you’ll have a $2,000 balance and only $5,000 of available credit, pushing your ratio up to 40 percent. This caution applies even if you pay off your balances in full each month. That’s because you can’t control when card issuers make their reports to credit bureaus. The bank that issued your Visa card, for instance, might make its report on the day before you pay off a four-figure balance.

You might also damage your credit score if you close an account that you’ve held for many years. That’s because the longer your credit history, the higher your credit score.

This doesn’t mean that you’re forever stuck with credit cards that you no longer want or need, however. “It’s fine to cut up cards,” explains Craig Watts, public relations senior manager for myFICO.com, a credit-scoring company in San Rafael, Calif. “Your credit score will recover in a couple of months. But be cautious about doing this right before applying for a major loan. You don’t want to do anything to torpedo your chances of getting the interest rate you want.”

[DanGarion]

I really suggest getting an account from Credit Karma, it's 100% free and you can get free monthly Fico scores. Their credit score analyzer will tell you why you place where you do, show you how things, affect your credit score, and also show you where you place compared to others. I've been using it for over a year and think it's great for what it is.

As with anything financial related, use a strong password that you don't use anywhere else.

Free Credit Score & Credit Report Card. No Credit Card Needed

Consumerist has talked about them in the past and provided this useful review of their Credit Report Card service.
http://consumerist.com/2009/06/take-...port-card.html

Oh and Consumerist is owned by Consumer Reports...

[Ksyrup]

I just looked at that last link DanGarion put in his post, and this article was linked on the side:

Go Ahead And Cancel Your Credit Card, The Score Ding Is Minimal - The Consumerist

[JediKooter]

Another thing to look out for if you don't use a particular credit card in a while is, that creditor will sometimes lower your limit. Keep your balances under 30% or just pay them off each month and you should be ok. If you are worried about the unused card affecting your score too much, just buy a tank of gas a month with the card and that should be fine.

[Ksyrup]

Most of the cards I've used for B/Ts, I haven't even taken off the paper they came with, much less carry them around. That would be a tremendous pain.

[dwardzala]

I heard recently on a one of financial "talk shows" that you should use a credit card at least once a month in order to keep the bank from reducing your available credit due to inactivity.

[gstelmack]

Originally Posted by dwardzala

I heard recently on a one of financial "talk shows" that you should use a credit card at least once a month in order to keep the bank from reducing your available credit due to inactivity.

My problem is with them increasing it without me knowing. I'd love a limit decrease on some of these...

[Samdari]

Originally Posted by albionmoonlight

I understand that the usual caveats apply about getting financial advice from a football-game message board.

That said, my question is narrow and factual, so I am hoping for a narrow and factual answer.

My understanding is that available credit positively affects credit scores. I have also been led to believe that if you do not use a credit card, then the amount of credit available on that card may not be counted toward your "available credit" for credit score purposes.

We have some credit cards that we used for balance transfers back in the day and that now lie fallow. I have two questions:

(1) Are my understandings above correct? If we don't keep using all of our available credit, might it not all be working for us in the best way possible vis a vis credit scores?

(2) If so, how often does a credit card need to be used to be consider "active" for these purposes? I would just as soon not use these cards all the time and clutter up my life. Can I just use one at the grocery every few months and pay off the balance on time? Do I have to actually be using the cards every month? Can I just do it every six months?

Any insight would be appreciated. My google-fu on this question has been thwarted by the eleventy-billion offers for FREE CREDIT REPORTS!!!11!!! that swamp the browser anytime I type in any marginally relevant term.

Thanks a ton.

According to my wife - who is a commercial credit risk analyst - unused credit will not positively affect credit scores. Since the company evaluating you is trying to determine your ability to repay loans it may extend to you, this is a risk for them, since it represents payments you could have to make without any further application/evaluation from another company. While she does not think it is a one-to-one open credit=debt relationship, she is positive that open, unused credit is not a positive asset to your credit score.

[Samdari]

Originally Posted by gstelmack

I'd love a limit decrease on some of these...

request it?