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CML207

Ive got alot open in my name...Better to close some or get $0 balances?

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Credit scores make very little sense to me, so bare with me.

 

Over the years, Ive opened alot up in my name for various reasons.  Most of them I do not use anymore, and were quick fixes to help family out in times of need.  They pay the monthly note, but it still has put alot open in my name. 

 

I currently have about 8 credit cards, with balances that are near their limit or not too far off.  I also have an auto loan and student loans.

 

I have been approved for a 2 year loan that covers the cost of 3-4 of these cards.  Ive been paying the minimumn on these cards, and at this rate it will take several years to pay them off.  It also saves me a ton of money as the loan has better interest rates.

 

My question is would it be better to use the loan to pay off the balances of these cards but leave them open, or to just go ahead and close them out?  Ive read that closing cards can hurt your score, but Ive also read that having alot in your name hurts too.  Trying to figure out the best approach.

 

Thanks!

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My question is would it be better to use the loan to pay off the balances of these cards but leave them open, or to just go ahead and close them out?  Ive read that closing cards can hurt your score, but Ive also read that having alot in your name hurts too.  Trying to figure out the best approach.

 

I would pay off the balances but leave the lines open and unused until you lower the balances on the other cards.  Here is why.  Utilization affects your score far more than anything else when you are paying as agrees.  If you pay off the cards and close them your over all utilization will still be near 100%.  Open lines that have a zero balance will lower your utilization percentage and should increase your score somewhat if not a lot.  Get the balances on the other cards down to 10% of your credit THEN start closing the unused and unneeded accounts.

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@CML207 also keep in mind the average age of your accounts effects your credit score, too. Therefore, if your credit card and other accounts are only a few years old, and the average age of all combined credit accounts is a relatively short period of time (let's say less than 5 years), then closing most or even some of them after you bring the balance to zero will shorten the average age of the remaining open accounts. This will hurt your score. In addition, if and when you use the remaining open accounts, your utilization rate will be high, negatively impacting your score.

 

If there are no significant annual fees to keep them all open, and the average ago of your accounts is low, it can be a good idea to leave them open and stick them in a drawer for a year or two so the average age of your accounts is sufficient prior to closing them. I'm not certain what a healthy average age of accounts is according the FICO scoring algorithm (my hunch is more than 5 years), perhaps others can chime in if they know.

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I'm going to disagree here a bit.

 

If the loan that you have been approved for is UNSECURED (i.e., NOT a HELOC...trading unsecured debt like CCs for secured debt is NEVER a good idea) then by all means, take the loan and pay off your CCs.

 

Then, once those CCs are paid in full...close them.  Eight CCs is 6 too many.  You only need two...one with a low limit for online shopping and day to day use, the other with a high limit for emergencies.

 

Yes, your "sucker scores" will fluctuate.  They will likely fall a bit...the "utilization" component of the sucker score is intended to predict who CCs will make money on...it has little to do with your "credit worthiness".  Your FICO New Car scores will be unaffected.  Your FICO Mortgage scores will rise.

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I'm going to disagree here a bit.

 

If the loan that you have been approved for is UNSECURED (i.e., NOT a HELOC...trading unsecured debt like CCs for secured debt is NEVER a good idea) then by all means, take the loan and pay off your CCs.

 

Then, once those CCs are paid in full...close them.  Eight CCs is 6 too many.  You only need two...one with a low limit for online shopping and day to day use, the other with a high limit for emergencies.

 

Yes, your "sucker scores" will fluctuate.  They will likely fall a bit...the "utilization" component of the sucker score is intended to predict who CCs will make money on...it has little to do with your "credit worthiness".  Your FICO New Car scores will be unaffected.  Your FICO Mortgage scores will rise.

 

That's very interesting @willingtocope. I agree that 8 cards is more than necessary but was relying on the FICO score I see on one of the credit bureau monitoring contracts I use and their explanation of what goes into the score in my reply to the OP. I did not realize reducing the number of cards to two would cause a mortgage score to rise. Do you think a mortgage score would also rise in the instance where reducing the number of credit card accounts to two would also significantly reduce the average age of accounts?

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@Determined1  ... Remember, the scores that consumers are allowed to see, either from credit monitors or thru CC "services"  are either flat out FAKOs or are closest to the FICO Bank Card scores (the "sucker" score).  The hype that sells those scores to the consumers says they "indicate your responsible use of credit" and "the higher the score the better".  The truth is, those scores tell CCs who they will make money on, by charging fees to the businesses that accept the card and interest and occasional penalties to the consumers.  And, the sweet spot for getting more CCs is in the mid 600's...justification for higher interest.

 

Therefore, the sucker score has "utilization" and "age (i.e, how long you've been a sucker)" in the calculation.

 

The FICO Mortgage score actually penalizes having multiple open CCs, even if the balance is $0.  The Mortgage Score is intended to estimate the chances of you making the monthly payments...something you might not be able to do if you've got 6 CCs that you might run up balances.

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