Jennifer asks: I just read your article about closing credit cards. My question is, I have store credit cards that I never use anymore and when I did I would only put a couple hundred on and pay as soon as they came in. I don’t have a balance on any of these cards. I am asking because I am looking to buy my first home and before I look into a loan, I would like to make sure all my finances are in order. What should I do?
Are any of the store credit cards your oldest credit account? In other words, was one of these cards the very first credit card or loan you took out? If so, I would keep that card open until after you get a mortgage, but go ahead and cancel all the others now.
If not, I don’t see the harm in canceling all four of these accounts. Store cards don’t have really high credit limits, so closing them is unlikely to have a huge impact on your credit utilization. Plus, the fewer open accounts you have when you apply for a home loan, the better. Your credit score may dip slightly immediately after closing the accounts (for a couple of months), but not by much, and it should recover.
Even so, I would think lenders would rather see you have a slightly lower credit score than a higher score but a bunch of open and unused credit cards.
Good Luck,
David @MoneyUnder30
Joanna asks: I am a 21 year old college student, graduating in a year and a half. I’ve been blessed to have gotten by so far with little debt, mostly because of financial aid and scholarships. I have about $1,500 in savings and hope to have a job soon. I’ll need to get a new car soon; my current one needs up to $2,300 to repair it.
I plan on trading in this car once it is repaired and I have a steady income, but I need to figure out how to get it fixed first. I know I need to build credit as well, so would you recommend putting the repair on a new credit card so I can make small payments until I get a job (the one I am hoping to get pays well and will allow for much larger payments once I start)? I don’t want to drain my savings to fix this car just in case something else happens, but I do not like
debt. If it does sound like a good plan, what credit card would you recommend? I only plan on using the card for this one big repair cost, and once that is paid off, only small purchases to build credit, occasional big expenses for no more than a few hundred dollars for electronics and/or possibly small trips. What would you recommend? [...]
Joe asks: Since I am a full-time student, I can use my student loans for anything. Could I buy up my credit card debt (consolidating it at a lower interest rate?) Is this a good idea? Is it legal? [...]
Jim asks: My wife and I have over $70K in credit card debt. We can get a loan to pay off $23k over five years at just three percent, but we’re stuck with the rest. Here’s the kicker: All of our interest rates have jumped to 29.99 percent to get ahead of the new laws. We have over ten years until we retire and will have multiple sources of retirement income. Should we use money in our 401(k) to pay off this remaining credit card debt. Our combined income is $120k. [...]
Renee asks: I am graduating in June 2010 and in the course of four years at school, I managed to make a mess with credit cards. As of today, I have seven cards, all which have carry very high limits. I’ve never paid late. I have two Visas, Discover, MasterCard, Macy’s, Express Fashion, and WalMart cards. When I graduate, I intend on paying off all my credit card debt immediately (hopefully within two months) so that I can then take care of my school loan debt.
When I clear off my credit card debt, should I cancel any of my cards? If so, which ones? I know that canceling a card makes a negative impact on my credit score, which is currently ranked as good. I will probably have to take out loans for grad school in 2011 and maybe for when I make some kind of living arrangement since I will be on my own. What should I do? [...]
Rebecca asks: My credit card rate just shot up to 29%. I have been working hard to pay this card off but now the minimum is more than I can afford. What can I do? I would like to work with the card company to get on a special plan or something to pay this off. Also, what happens If I don’t pay the minimum each month and only pay what I can afford? Will they accept that? [...]
Craig asks: ING Electric Orange MasterCard: What is the APR for the credit card use? [...]
Edward asks: If I have a balance transfer option on a card but I already have a balance on that card, can I transfer the balances onto other cards and, once those transfers clear, transfer the money back to the original card and get the zero or 1.99 percent transfer APR that they were going to give me? [...]
Ben asks: “My twin brother and I share a Credit Card with Citibank and want to change our card from their “Elite” level which charges a fee, to their “Bronze” level, which does not charge a fee. The folks at Citi said they weren’t sure if this would affect our credit scores. They said it might show on the report as “Brand Conversion.” Will this affect our scores?”
It all depends on whether they treat the change as a “conversion” as they suggest or the cancellation of your original credit card and a reapplication for a new one. Push them on whether the account will remain the same, or whether you’ll have to apply for a new card. Some credit card companies will only allow you to switch cards by canceling your original account and reapplying for a new card.
If this is the case, yes, it may damage your credit, because your credit score improves the longer you have had accounts opened. If, for example, you had the original “Elite” card open for five years, you would losing out on five years of history on your report. In the end, I wouldn’t take the company’s word for it. If you are convinced you want to make the switch, be prepared for it to have at least a minor negative impact on your score.
