Posted: 2/10/2011 2:28:46 AM EDT
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Ive been working on paying off the couple of credit cards that I have, after months of working the balance down Im to the point where I can pay one totally off.
So when the balance is $0 is it better to keep it open or close it all together? Im trying to raise my credit score cause im getting ready to buy a house in the next 6-8 months. Thank you Cody |
The current credit score logic seems to in fact lack logic. It has been in the past a good thing to have zero balance or near zero balance accounts as it shows restraint on your part. While at the same time some lenders see it as a potential to overextend yourself by accessing the available credit. Hope that helped.. 
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| You want to keep it open. Balances on revolving accounts and the amount of credit you have available do impact your score. Keeping the credit card at a $0 balance will increase your score. Terminating your credit card will hurt your score, not significantly but possibly enough to throw you into a higher risk category increasing interest rates, points, or possibly resulting in a denial of credit. I would play it safe and wait until after you close your mortgage to terminate your credit card. Of course, a credit card is always good to have for unexpected expenses around the house (until you can obtain an equity line) and emergencies. Providing there is no annual fee, I would keep the card for that purpose. |
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Basically it CAN look bad if you are not careful.
For instance if you have two cards, Card A and Card B, both with a $3k limit. Lets say you have $2,500 charged on both ($5,000 total). If you pay off one and close it, in the eyes of the credit company, that is BAD. On the remaining card you are too high percentage of maxing out available credit. Also, it looks GOOD to have longstanding credit accounts. They prize HISTORY. So opening and closing accounts frequently is damaging. Better to get a couple of good cards (like from a credit union, USAA, etc) and keep them LONG TERM. Use them for the basics and always pay them off monthly. Hope that helps- 4073 |
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Quoted:
They look at ratio of debt to income.. Keep the card open. This. The answer is "it depends"...there is a balance between too few and too many cards, regardless of balance. It typically looks "better" to have 3 or 4 cards with low to moderate balances rather than just one card...why, I don't know but that's what I've been told by lenders. Too many cards, even with 0 balance and you have the potential to screw yourself (and any potential lender) by running your balances up. You might want to keep the card open if you've been with that bank/firm for some time. There is the old "long time customer" factor; I recently had my bank go out of it's way to find a solution in my favor to a fraudlent charge simply because I had been a (good) customer for many years. |
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Let me correct the others above slightly. It is not as much a debt to income equation as it is a debt to AVAILABLE CREDIT equation with payment histories factored in. The reporting bureaus don't focus on your income as a major component of your score. They do know how much credit you have extended to you as reported by the various cards, loans, mortgages you have outstanding and your payment hisories. Of course, income comes in to play when you APPLY for a card / loan etc. But there are plenty of HIGH INCOME folks with horrible credit because of late payments, loan defaults, etc. 4073 |
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Quoted:
Ive been working on paying off the couple of credit cards that I have, after months of working the balance down Im to the point where I can pay one totally off. So when the balance is $0 is it better to keep it open or close it all together? Im trying to raise my credit score cause im getting ready to buy a house in the next 6-8 months. Thank you Cody More than two or three it is best to close the LOW balance ones and maintain 2 paid off with high balances. It may temporarily dent your score to close them, but in your timeframe it will not be an issue. DO NOT apply for ANY form of credit until you get your mortgage. Banks are sketchy about ANY credit apps in the last year. If you use a card and pay it off at the end of each month, pay it off several times a month, or immediately after a major purchase. The CC co's report at various times of the month. Even if you pay off before your statement date, they may have reported your balance 10 days prior. For example, on day one, I have a zero balance. On day 10 I have a $1000 balance. On day fifteen CC reports $1000 balance. On day 29 I pay it off. On day thirty I check my credit report and it says balance of $1000 and my score takes a hit due to my utilization rate. Go to Privacyguard.com and sign up for $13 a month you get monthly big 3 reports and scores, as well as tracking. They also do all the leg work of contesting info on your report. Really great service and the monthly graph of all three scores is fun to watch as you fine tune everything. |