Q&A: Is it better to have credit cards with no balance or close them in order to have good credit or help build it?
Friday, July 16th, 2010 at
6:36 pm
Question by tgrlvr333: Is it better to have credit cards with no balance or close them in order to have good credit or help build it?
I have a few credit cards and only one with a balance, should I close the empty ones or keep them. I am trying to up my credit score and am not sure which is better.
Best answer:
Answer by Don E
no balance on existing cards will net more credit.
Add your own answer in the comments!
Tagged with: balance • Better • Build • Cards • close • Credit • Good • Help • order • them
Filed under: Credit Repair
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Choose 3 and get rid of rest. Close them out. Rotate these three and pay them off each month. That will set up your credit nicely. Use for gas and groceries, which you will need. Try not to use on impulse purchases. Getting into serious credit card debt is the greatest danger you have. This would totally wreck your finances and credit score. LIMIT their use. Save cash for big purchases.
We opened a new account at Bank of America and the loan officer told my fiance that she had a credit card opened since 1988. She said she’d forgotten about it since it had no balance and that she’d thought about closing it. He said not to since having a card for that long was excellent for her credit.
Some balance is okay now and again but having a high balance doesn’t help obviously.
There’s an old saying in the credit card business: “Old credit is the best credit.”
Having a long credit history, showing that you’ve been paying on time for a long time, really helps your score. Closing down accounts erases part of that history.
Think of your credit score like you would a grade in school. A teacher calculates grades by taking scores from tests, homework, attendance and anything else they want to use, weighting each one according to importance in order to come up with a final single number (or letter) score. Your credit score is calculated in a very similar manner. Instead of using the scores from pop quizzes and reports you wrote, it uses the information in your credit report.
The number itself can range from 300 to 900. The formula for exactly how the score is calculated is proprietary information and owned by Fair Isaac. Here, however, is an approximate breakdown of how it is determined:
35 percent of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how timely) you pay your bills.
30 percent of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25% or less of their limits. This does count closed accounts into this “balance to high credit ratio”.
15 percent of the score is based on the length of time you’ve had credit. The longer you’ve had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.
10 percent of the score is based on the number of inquiries on your report. If you’ve applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you haven’t used the cards or gotten the loans). The more recent these inquiries are, the worse for your credit score. FICO scores only count inquiries from the past year.
10 percent of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you shouldn’t have. These actually come more into play if there isn’t as much other information on your credit report on which to base the score. This information is compared to the credit performance of other consumers with similar histories and profiles. Based on this information having only a few credit cards open but at -0- balance, keeping one open and used rather than closing them will be more beneficial as long as you remain in self control in not using the cards that remain open. If you feel at all like you may impulse buy or tempted by the “great offers” you will get in the mail, then I feel compelled to tell you better to keep a modest score and be able to afford your bills by closing the non-essential cards.
Just food for thought, hope it helps!
Rip them up, they will be reported as “in good standing” with a $0 balance over the months and this is good. As long as you don’t miss payments it shows a positive reflection on your score.