Question about open credit

iVillage Member
Registered: 03-16-1999
Question about open credit
11
Thu, 11-04-2004 - 5:29pm
I am furiously trying to pull together a plan to save,pay, invest ala Dave Ramsey. In reviewing our credit cards I have discovered that we have about $31000.00 in open credit on various cards. Most are completely paid off and we just haven't closed the accounts. What I can't figure out is whether we are better off (from a credit report standpoint) to have a bunch of open credit that we don't use OR show that we have $X income and only a smaller amount of open credit. Our credit score it pretty good and we are probably going to be able to pay off everything within six months or so (trying to figure all of that out now) so we are not in any real trouble or anything. We are just trying to make the best moves possible so we can get to the part where we can save at least 10% of gross income. Anybody know which is better?

Pages

iVillage Member
Registered: 02-19-2004
Thu, 11-04-2004 - 9:21pm
There are so many factors that go into a credit score, it's really hard to say which is better. If it were me though, I'd opt for leaving the cards open. I'd still cut them up and not use them. If you find down the road that your credit card is still too low, you could try it and see what happens.

Photobucket

iVillage Member
Registered: 05-30-2003
Thu, 11-04-2004 - 9:48pm
Well, this is the 'expanded' version of Dave Ramsey's Baby Steps that gets posted every so often on those boards:

0.1: Commit to NEVER borrow $$$ EVER for ANYTHING other than possibly a house.

0.2: Talk with spouse and get him/her on the same page as you concerning finances.

0.3 Do a written budget

0.4 Temporarily stop all retirement contributions

0.5 Get current on all the basics (You MUST have Shelter, Food, Utilities, Basic clothing)

0.6 Amputate "toys" (bikes, boats, ATV's etc) if they will keep you from completing the snowball within 12 months

0.7 Cut lifestyle (Cut CATV, Cell phone, Regular phone "extra's", Internet, Eating out, etc) and/or take second job if $1000 EF will take more than 30-90 days. (Depending on income)

0.8 Get current on ALL bills

1.0 Save $1000 In baby EF

1.1 Chop up CC's (You have an EF now, no NEED to keep those CC's !!)

1.2 Get Health insurance NOW (chances of getting sick w/ major medical bills are larger than that of death), especially if you have children.

1.3 Get Life insurance NOW if you have considerable debt/your family couldn't make it financially if you died. Especially important if you have children!! Social Insecurity provides only a small amount of coverage if you have dependents.

1.4 Amputate cars that you can't pay off within 24 months (You have an EF to fix the "bondo buggy" if something should happen)

1.5 Consider raising insurance deductibles to $500 or $1000 and dropping full coverage on paid for "bondo buggy" (You have an EF ya know)

2.0 Do debt snowball, paying all your debts from lowest BALANCE to highest.

2.1: You can take your first vacation since finding Dave if you can pay cash for it (no using the EF!!!)

3.0 Save 3-6 months EXPENSES in EF

3.1 Start car replacement fund

3.2 Save up 20% for home purchase OR pay down existing mortgage to the point you can drop PMI.

3.3 Start furniture or other non-essential stuff replacement fund

3.4 Move up in car if you still feel the need to (must pay cash for it)

4.0 Start contributing 15% of your paycheck to retirement.

5.0 Save for kids college fund

6.0 Pay off house early

7.0 Live like no one else since you have lived like no one else (investment ideas at this stage greatly appreciated, Dave doesn't go into too much detail on this stage)

******Now, granted, my thoughts on the open vs. closed cards are influenced by these, so just keep that in mind.

Knowing how we are with open credit cards, our plan is to completely close them. It's just too tempting to rationalize the open card with, "Oh, since we don't have any payments except utilities, we will surely pay the balance this month..." Uh, well, not really, LOL!

Part of Dave's thing is that by the time you have your 3-6 month emergency fund in place, you shouldn't need credit cards, because like he says, "Because, Honey, we don't do credit around here." I know that a good credit score is necessary if you want to be considered for a loan, but if it's in good standing now, and you have the cash to back it up, I'd close all but a couple(don't close the ones you're paying off-I hear the companies do nasty things sometimes) and yell, "We escaped the cheeeeeet-taaaaahhhhh!"

Good for you for being this far-how exciting is this!

~Lisa

iVillage Member
Registered: 09-21-2004
Fri, 11-05-2004 - 12:06pm
I'm gonna hijack this in a way. I have a cc account that is opened. The cc is cut cause I just went to the store to get a bunk bed for my son and it was a store card. Paid it off and never closed it. I was young and didn't realize that you had to close the accounts. For some reason I thought just paying it off would close it. Well, I want to close it but don't know the name of a store, it wasn't a major chain, the store has been sold since, I don't know the name of the cc company or anything. How would I go about getting the info so I can close the account?
iVillage Member
Registered: 02-19-2004
Fri, 11-05-2004 - 12:40pm
Is it on your credit report? Usually stores will close the account after a certain period of inactivity, so I wouldn't worry much about it.

Photobucket

iVillage Member
Registered: 09-21-2004
Fri, 11-05-2004 - 2:10pm
Yes but its been years since it has been paid off. I actually had forgotten about it until I checked my credit report a month ago. It says open still. *shrugs*
iVillage Member
Registered: 02-19-2004
Fri, 11-05-2004 - 2:48pm
Ok, it still says open but what does it matter. It doesn't hurt your credit, unless you have an excessive amount of available credit (and sometimes it will hurt your credit if you have very little available credit). You should be able to get information about the company through the credit bureau if you really want to get ahold of them to close it.

Photobucket

iVillage Member
Registered: 05-30-2003
Fri, 11-05-2004 - 5:13pm
The companies don't always close the accounts after a period of inactivity, though.

When I pulled my credit report this summer, there was an account that I know I have not used in almost 13 years still listed as open. Not only was it not closed (still isn't, I don't think-I haven't sent a letter to them), but they had raised my credit limit repeatedly during that time.

To be on the safe side, especially since ID theft is such an issue, get the information from your credit report and write the company a formal letter telling them that you want the account to be closed-and have it shown as closed by consumer. (Looks better than closed by creditor).

Lisa

iVillage Member
Registered: 03-16-1999
Sat, 11-06-2004 - 7:58pm
Thanks... I've read the Ramsey thing too. I don't have a problem sitting with open credit and not using it. My only question is whether to just close it out since I'm not using it anyway. I might want to buy a second house as investment and am not sure whether I am supposed to show that I have a bunch of credit I'm not using or whether I am supposed to show I have a big difference between the open credit I have and the amount I could haved. Just seems like property is a good investment right now.
iVillage Member
Registered: 04-07-2003
Sun, 11-07-2004 - 3:33pm
I probably would not close the accounts as long as you are committed to not using them. I might consider closing some of them if they have low credit lines. How many cards is the amount spread over? Another thing to consider is whether any of the credit lines charge annual fees. Suze Orman advocates not closing open lines, but that is only if you still have debt, because it will affect your percentage between open credit lines and amount in use and thereby affecting your FICO. If you are worried about FICO, I would keep them open.
iVillage Member
Registered: 03-16-1999
Sun, 11-07-2004 - 4:30pm
Thanks... I have the amount spread over two cards. I have a third that I had forgotten about so that would make the open credit even greater. I think I will take your advice and just leave everything that does not charge and annual fee. I am paying off what is left on another card or two and then will be without cc debt. Once I am there I may close out all of the old accounts leaving only the very low interest (and no annual fee) accounts on the books. Thanks again.

Pages