Question about Credit Cards

**tbs727** · 06-10-2007, 07:40 PM

I have a Capital One card and a Walmart card. I am trying to rebuild credit, but I don't really want credit cards. The Credit line on Capital One is maxed at $300, and the Wal-mart card only has a credit line of $125 and I don't really need it. I would like to close one or both of the accounts, but I think I need an open line of credit to improve my credit score. I would rather keep the WM card because I'm less tempted to use it and it has such a low credit limit that I can't do too much damage if I lose control. What would benefit me more? Keep them both open, close one of them, or close both?

**ConsciouslyFrugal** · 06-10-2007, 08:02 PM

Debt-to-income ratio is important for credit ratings. Folks will often close accounts, thinking they're helping their credit rating when, in fact, it can hurt it. But having cards at or near the limit isn't good for your credit rating either.

I would suggest keeping both accounts open, paying off balances and cutting up the Wal-Mart card. If you have to purchase airline tickets, etc., you can use the other card. Having available credit (AKA opportunity for debt) is actually a good thing for building credit and increasing your score. Rather counterintuitive, isn't it?

In short: pay it off, keep both accounts open but only keep one card away from the scissors.

Hope that helps,
CF

**ConsciouslyFrugal** · 06-10-2007, 08:06 PM

One more thing--something I do to resist debt temptation: I post my goals (a trip to Italy is one of them!) in a spot where I can see them everyday. Anytime I think about putting some useless crap on a credit card, I am reminded by my little list of financial goals about what's truly important to me. Italy is way better than another useless gadget I don't really want or need.

Spending urges are usually about feeling crappy about some area of my life, not about actually *needing* any particular item. I just have to remain mindful of what's really going on. And keep reading books about Italy.

**Jenna** · 06-10-2007, 10:26 PM

Originally Posted by ConsciouslyFrugal

Debt-to-income ratio is important for credit ratings. Folks will often close accounts, thinking they're helping their credit rating when, in fact, it can hurt it. But having cards at or near the limit isn't good for your credit rating either.

I would suggest keeping both accounts open, paying off balances and cutting up the Wal-Mart card. If you have to purchase airline tickets, etc., you can use the other card. Having available credit (AKA opportunity for debt) is actually a good thing for building credit and increasing your score. Rather counterintuitive, isn't it?

In short: pay it off, keep both accounts open but only keep one card away from the scissors.

Hope that helps,
CF

I agree. Take the Cap1 card out of your wallet, and stash it away somewhere for true emergencies (or stuff like renting a car.)

CF gave great advice.

**Frugal Girl** · 06-11-2007, 07:29 AM

Consiciously Frugal is right. A year ago, I paid off fie credit card bills and closed the accounts. That dropped my credit score from the mid 700's to below 700!!!

Pay off the debt, cut up the cards.

Are you wanting to build credit for a future home or car purchase? If so, then don't pay your cards off at once. Just pay the minimum balance + the finance charges + $10. This will pay your bills down.

Someone once explained to me that in order to build credit, you have to owe a balance and pay on it every month on time. It can take time, but you can do it.

Let us know how it goes!

**ConsciouslyFrugal** · 06-12-2007, 09:26 PM

Frugal Girl: One, that is some kay-rap about your credit score. Ya think you're doing a good thing for yourself and the lunacy of the credit card industry...oy. Two, your avatar is hilarious! I want to get that on a poster for my sisters. ha!

**Jenna** · 06-13-2007, 12:09 AM

Are you wanting to build credit for a future home or car purchase? If so, then don't pay your cards off at once. Just pay the minimum balance + the finance charges + $10. This will pay your bills down.

Pay off the cards ASAP. No need to carry a balance just to up the score. It's better to keep the debt utilization below 30%, or PIF. Just keep the cards open - or keep the oldest card.

**MamaBear209** · 06-13-2007, 09:11 AM

yes, I agree that you don't have to keep a balance on your card and pay interest to raise your score. I've always paid my balance in full and still have a high credit score.

I use CCs to take advantage of the cashback offers. For us using credit cards is just like paying with cash, i.e., I don't spend more than what I have to pay for it. Unlike cash payments that I don't get cash back, paying with CC has given me money back plus other perks so I take advantage of this.

**ubumartin** · 06-13-2007, 10:24 AM

I think you should keep them open and use them a little but pay the balance off asap. Don't carry a balance. I think that will help your credit score.

**tbs727** · 06-13-2007, 10:26 AM

Part of the problem is when DH goes back to school, he's going to say, hey I need books, lets put them on your credit card. I don't want to mislead him, but I do want to improve my credit score. I'm thinking about telling him I'm closing the account, pay it off, then have them send me my account statement electronically and never actually use the card.

**ubumartin** · 06-13-2007, 10:36 AM

This is from Suzie Orman and I got it on Oprah.com under money. That is a good idea to tell him you got rid of the cc if he is using them alot. Good luck with getting your score up, it is hard work but you seem determined to do it.

If you have a credit score of 560 or below (you can check yours at myfico.com), you likely don't have much negotiating power, but it's still worthwhile to ask your existing card company to lower your interest rate. If they won't, list your credit cards in order, from the highest interest rate to the lowest.
Each month make the minimum payment due for every card on time.
On the card with the highest rate, add as much to the minimum as you can.
Keep at this until the highest card is paid off (don't cancel the card once you've paid it off, as this hurts your FICO score, simply hide it away or take a pair of scissors to it.)
Add the amount you were paying on that card to the amount you've been paying on the second-highest-interest-rate card. Continue to make the minimum payment due on all the other cards.
As you start to pay down this debt, your score should rise, and you'll eventually be able to qualify for cards with lower rates or transfer your remaining debt to a card with an initial rate of zero percent.
If you still aren't able to transfer all of your debt onto the new, lower-rate card, simply focus on moving your highest-rate debt to the new card.

**lottaLove** · 06-13-2007, 10:38 AM

I think maybe the rules are different in different areas. For example, when I was talking to a mortgage rep at our bank, she suggested to me that I pay off some of my higher limit cards and close the accounts. You have very low limits on both cards, so I cannot see that hurting your credit the same way it would if you had two 8000 limit cards at your disposal.

The way she explained it to me is that if I have a 5000 card sitting there it is a potential debt load even without a balance, and so they factored this into the calculation when they were deciding how much I would be able to borrow. Basically they lowered the amount I could borrow to accomodate for the fact that I could be forced to make minimum monthly payments on this card at some future date, even though it had no balance.

I would speak to either a banker or some other financial analyst in your area to get the whole story.

**ConsciouslyFrugal** · 06-15-2007, 10:21 PM

I hate to be mother-henish, but is not being honest with your spouse a good idea? I've made it abundantly clear to my partner that we have to talk openly and frequently about money, with painful honesty, or we might end up like the 50+% of married folks who don't make it as a couple (largely due to money issues).

Hiding stuff from him just doesn't seem like the sound, long-term option. I hope that you can both get on the same page about what's important financially. If not, then I suppose a little mystery wouldn't hurt. But it would be great not to have that kind of secret and potential tension there.

**tbs727** · 06-16-2007, 09:44 AM

Originally Posted by ConsciouslyFrugal

I hate to be mother-henish, but is not being honest with your spouse a good idea? I've made it abundantly clear to my partner that we have to talk openly and frequently about money, with painful honesty, or we might end up like the 50+% of married folks who don't make it as a couple (largely due to money issues).

Hiding stuff from him just doesn't seem like the sound, long-term option. I hope that you can both get on the same page about what's important financially. If not, then I suppose a little mystery wouldn't hurt. But it would be great not to have that kind of secret and potential tension there.

I agree with you. I guess I just don't want to provide that opportunity for conflict with DH. He and I are on the same page financially, FINALLY! We now have the same goals and want to handle our money the same way (no cc debt, the Dave Ramsey way) The problem is DH has little self control and works very hard against the temptation to use credit cards instead of cash. If he knows we have an open credit line, that will be in his thoughts and when things get tough, it might be too hard for him to fight it, then we will have a conflict. I may just not say anything and just let him assume I closed the account. Its just an idea. Thanks for your honest opinion.

**ConsciouslyFrugal** · 06-19-2007, 04:45 PM

Thanks for your honesty in opening up about this! (Actually, I am so impressed with folks on these boards for being so brave about such Big & Scary issues. Cool peeps, no?)

All I keep thinking is--school books. One day, y'all are going to be bringing in a lot more cash. The fact that you're focusing on not increasing debt is gonna make that money all the more useful and enjoyable. I wish I had been so bright during my college days! Now, I just need to send my nephew to your post and say, "See? That's a smart girl. Act like her while in school, not like your stupid Aunty did."