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Author: mjw3786 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308454  
Subject: Some house cleaning questions Date: 1/2/2013 4:57 PM
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Hey y'all, i'm back for a quick update and a little advice. For those not familiar:

last post [woohoo!]
http://boards.fool.com/to-that-debt-i-say-good-day-30250840....

So I am now *completely* debt free. Savings less car loan balance is seriously in the black. We're saving aggressively towards a wedding and down payment and the next month will include some shifting for retirement contributions on top of what we've already been sending.

Question is about these skeleton accounts. I want to close unnecessary accounts so I don't look scary to a potential lender for a mortgage in the next 12-24 months. No rush, but also no reason to have all of these when I only use one of them.

I ran my credit report this afternoon and I have EIGHT open CC accounts. Here is the breakdown:


Card Opened Limit APR
-------------------------------------
Discover 5/1997 16,500 10.24% *oldest so prob not closing this
BofA-MC 5/2002 10,400 9.9%
BofA-AMEX 7/2003 None 9.9% *this is my daily use card so not closing it
CU 9/2006 23,500 7.24%
Chase-Visa 10/2006 10,500 9.9%
BestBuy 5/2009 2,000 24.0%+
RoomsToGo 3/2010 4,500 24.0%+
Citi MC 7/2010 7,300 9.9%


I am thinking I will keep AmEx [usage/rewards], Discover [age], BofA MC [age], and CU [High Limit/emergencies]. I don't anticipate the need or "urge" to use credit for any purchases I don't have savings to immediately pay off. I have a good cushion in savings for now and plan to keep building on that. What am I missing here? Any suggestions are very much welcome.

Thanks and HAPPY NEW YEAR, Fools!
Mike
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Author: Windowseat Big funky green star, 20000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306608 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 5:15 PM
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What am I missing here? Any suggestions are very much welcome.

What you are missing is that to most lenders, someone who has a lot of unused credit looks really, really, good. You have plenty of credit, but don't use it, so they will assume (correctly) that you control how much you spend and are keeping your spending within limits.

I would suggest closing the two store cards, but leaving the rest open.

Nancy

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306609 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 5:32 PM
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Congratulations on being debt free! I agree with Nancy. Go to CreditKarma.com, get a free credit score based on your Experian profile, and use the credit score calculator to see how your score will be affected by closing different cards.

Fuskie
Who expects you will take a short term drop in your credit score but thinks you will benefit from not having store credit accounts in the long run...

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306610 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 5:32 PM
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Check that all three CRAs have only correct information. You have time now to deal with any incorrect information.

Closing accounts could do more harm than good. The general recommendation is to not change any accounts when planning on applying for major credit.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306611 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 5:40 PM
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I want to close unnecessary accounts so I don't look scary to a potential lender for a mortgage in the next 12-24 months. No rush, but also no reason to have all of these when I only use one of them.

Yeah, actually there is a reason to keep them open. What looks scarier to mortgage lenders are people who are using a large part of their credit on a regular basis. If the mortgage lender wants you to close some of your accounts because you have 'too much' open credit, they will tell you then.

To get the best credit score in order to receive the best mortgage rates, you need to keep enough of the open credit lines open so that your maximum monthly spending is less than 10% (5% is better) of the total credit limit. For instance, if the maximum amount that you forsee spending (including wedding/honeymoon spending, etc.)in a month is $4,000, then you would need to keep at least $40k in credit lines open, and $80k would be better.

Closing the store cards probably wouldn't hurt your credit score, and may help it, because store cards can be scored as 'consumer finance', which is considered riskier in some credit score algorithms. But I would not recommend closing any of your general use (Visa, MC, AmEx, Discover) cards.

Additionally, since your 'daily use' card is one of the cards apparently doesn't report a credit limit, for 2 - 3 months before you go to apply for the mortgage, until after you close on the house, you should consider using a different card for much/all of your daily use. This is because for cards that don't report a limit, credit scoring algorithms often look at the maximum spend in the last 1 - 2 years, and use that as a proxy for the credit limit. So even if you are only spending your typical amount each month, you could show a very high utiliztion on that particular card, which could drop your credit score significantly.

AJ

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Author: mjw3786 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306612 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 5:47 PM
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I knew I could count on you Fools to give me wisdom!

Very glad I checked in here before making any moves. I hadn't considered that. Credit Report #1 looked accurate and had a total reported balance of $2.00 - Two dollars.

I will go check out creditkarma after dinner and play around with the calculator. Good suggestion!

So is that a new thing? I'm not looking to shop for mortgages until later this year EARLIEST. Lease is up in November. More likely that we'll go M2M for 2-6 after that, depending on how our saving/searching goes.

I always thought more accounts was a liability. At this point my score is likely very high. I haven't had any late payments. Ever.

Hope everyone is well! Thanks for the wisdom :D
Mike

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Author: mjw3786 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306613 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 5:51 PM
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"Additionally, since your 'daily use' card is one of the cards apparently doesn't report a credit limit, for 2 - 3 months before you go to apply for the mortgage, until after you close on the house, you should consider using a different card for much/all of your daily use. This is because for cards that don't report a limit, credit scoring algorithms often look at the maximum spend in the last 1 - 2 years, and use that as a proxy for the credit limit. So even if you are only spending your typical amount each month, you could show a very high utiliztion on that particular card, which could drop your credit score significantly."

so because the card reports "no limit" -- any spending on that is viewed with a zero in that calculation? you'd think they would assign a ratio number of infinity or at least $100K or something much higher than a fixed limit card. that is kind of odd, but nevertheless it's exactly the kind of info I would expect to find here and pretty much nowhere else.

thanks AJ and happy new year!

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306614 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 6:04 PM
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CreditKarma has been around for many years. It's Clark Howard approved, so don't feel queasy about providing your SSN. Basically, they provide free score tracking (I update once a month) in exchange for using your score to push credit usage opportunities for you. You don't have to pay any attention to them - I don't - but the site has some great financial tools for you.

You can also look at Quizzle.com, a site that lets you get free credit reports twice a year. In addition to your three annual credit reports provided guaranteed to you by Uncle Sam and you have 5 months of the year that you can view your credit report. Space it out every 10 weeks and you have the year covered.

Fuskie
Who notes the number of open accounts is a balancing act where you want to have the amount of credit that best corresponds to your perceived credit worthiness, which is defined by your ability to use that credit responsibly; in other words, it's not just how much credit you have but how you have used and are using it...

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306615 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 6:12 PM
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so because the card reports "no limit" -- any spending on that is viewed with a zero in that calculation? you'd think they would assign a ratio number of infinity or at least $100K or something much higher than a fixed limit card.

They do use a proxy for the limit. Unfortunately, it's usually a lot lower than a card with a fixed spending limit. As I said, for cards that don't report a limit, credit scoring algorithms often look at the maximum spend in the last 1 - 2 years, and use that as a proxy for the credit limit. So, if the most you spent in any one month during the last few years on your daily spend card was $4,000, and you typically spend $2,000 in a month, your typical ratio will show as 50% and in the month you spend your maximum, the ratio will show as 100%. On a single card, these ratios can be high enough to trigger a lower credit score.

This is because many 'no limit' cards are charge cards, that don't allow you to carry balances, and are supposed to be paid in full every month. Because of these rules, calculating a credit ratio is really kind of a moot point, which is why the credit scoring algorithms just use what your maximum monthly spend has been as your 'limit'.

And speaking of 'no limit' - it's not really 'no' limit - there are limits, as you would probably find out if you tried to charge something for more than, say, $50k or $100k - the credit card companies just don't tell you what level they will flag purchases at. So if you are planning on purchasing something really large on a card that is 'no limit', you are best to check with the card company first, in order to ensure that you will be approved.

Happy New Year to you, too.

AJ

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306616 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 6:13 PM
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so because the card reports "no limit" -- any spending on that is viewed with a zero in that calculation? you'd think they would assign a ratio number of infinity or at least $100K or something much higher than a fixed limit card.

What I have seen used for the limit is the highest balance reported.

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306617 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 6:35 PM
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Don't make the mistake I did! Keep them ALL open.

Just before I went to get a mortgage, I closed all of my cards except one (closed 3). Same logic - "look how responsible I am, without tons of credit cards!" What I didn't know then, that I do now, is that this makes you look terrible to a potential lender and drags your score down.

So - yeah,close these AFTER you have the mortgage and have closed on the house. Not before.

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306618 of 308454
Subject: Re: Some house cleaning questions Date: 1/2/2013 6:37 PM
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So, if the most you spent in any one month during the last few years on your daily spend card was $4,000, and you typically spend $2,000 in a month, your typical ratio will show as 50% and in the month you spend your maximum, the ratio will show as 100%. On a single card, these ratios can be high enough to trigger a lower credit score.
This is exactly what happened to me. I closed all cards, had one open card that reported my $ balance spent as my limit, so it looked like I was using 100% of my credit balance - making me look like a deadbeat.

Whoops...

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Author: determinedmom Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306621 of 308454
Subject: Re: Some house cleaning questions Date: 1/3/2013 1:43 AM
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I want to close unnecessary accounts so I don't look scary to a potential lender for a mortgage in the next 12-24 months. No rush, but also no reason to have all of these when I only use one of them.

I ran my credit report this afternoon and I have EIGHT open CC accounts. Here is the breakdown:


I received a mortgage a few months ago and had lots of open CC accounts - way more than 8. These were left over from when I used to have a lot of CC debt. Nonetheless, my credit scores were over 800. I use Amex for most of my daily spending and I did take the precaution of paying that card throughout the month so that the billed balance was very low relative to its limit.

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Author: mjw3786 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306622 of 308454
Subject: Re: Some house cleaning questions Date: 1/3/2013 9:48 AM
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Point taken. So what does everyone think about closing the store accounts? [BestBuy,RtG]

There is no danger of using these cards for purchases and they're all locked in the safe where they've been for months/years. There is always the risk of fraud but *knock-knock* I haven't had any issues with this so far.

So am I better off just leaving things as is until the mortgage is locked in?

Mike
*heads over to CreditKarma*

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306623 of 308454
Subject: Re: Some house cleaning questions Date: 1/3/2013 10:45 AM
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You will take a small hit for closing retail store cars, but it will be temporary. They are not high credit limits so they will have minimal impact on your overall amount of credit extended, and they are generally considered inferior credit over the majors.

Fuskie
Who thinks if you are not looking at getting a mortgage until next November, you should be fine to close the store cards today...

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Author: mjw3786 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306625 of 308454
Subject: Re: Some house cleaning questions Date: 1/3/2013 11:39 AM
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It could be as early as this November, though I suspect it will be more like Q1 2014.

CreditKarma was a big help! I hadn't chosen TU to pull my free report yesterday and CK informed me that I had 2 student loans still reporting a small balance. I was able to pull the TU report from AnnualCreditReport.com and correct these accounts along with:

-One incorrect name
-One incorrect phone number
-Two incorrect addresses

CreditKarma guesses my score [with the two loan balances @ $195 total] is 796. This is sufficient to get the best rate on a mortgage, no? Assuming I have 20%+ down?

I like you, CreditKarma.

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306626 of 308454
Subject: Re: Some house cleaning questions Date: 1/3/2013 11:52 AM
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That is a super duper credit score and should be an indication of the kind of score you would receive from vendors from whom you seek credit. You should be able to get the best rate for any credit you seek with a similar score.

Fuskie
Who encourages you to use the tool to estimate your score if you close those retail accounts to see how you might be effected...

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