Did you know that closing your credit card account affects your credit score? Your credit score will go down because you closed the account!  It’s  True!  I know it’s crazy but let me explain why; this is because it reduces the amount of available credit that you have which can reflect to a certain degree negatively on your ability to obtain credit from a financial institution.

Here is an example: let’s say that you have seven maxed out cards and one paid off card.  You decide to close the account that is paid off; this in turn affects your credit score because now all that your credit history repair services shows is that you have used up all of your available credit.  This in effect is why this can become a problem.

This tells the scoring models that you are a credit risk because none of your accounts are open and paid off but perhaps more importantly it reduces the overall amount of credit available to you which suggests that you are over extended.

There you have it…you get dinged for not having enough credit and for having too much!

As far as credit scores are concerned, if your balance is paid off then you should keep the credit card open because it improves your credit score. Even as it lies dormant for a couple of years it won’t hurt you. By closing the account you increase the difference between your card balances and your available credit.

If you have a significant amount of credit card debt then you should keep the paid off accounts open until you can pay off the majority of your open debts. If you want to avoid charging those cards then you should cut those credit cards in half and keep them so that you have the account numbers and put in a safe secure place, like a safe deposit box.

The bottom line…especially in today’s economic climate, think carefully before making any decision that could affect your ability to borrow in the future.

Be Bold!
Herschel

Opportunities for credit come in the mail if you are doing certain things or member of certain organizations. I have found that if you are going to school, you are a target for credit card repair companies to send you multiple offers in the mail. You are gaining an education and are going to have more money earned to pay for things than those people who do not go to school, college or university.

If you join a frequent flyer organization, even if you don’t fly very often or at all, this will put you on a list of preferred offers from credit card companies to offer you opportunities to apply for their credit cards.

Opportunities come in a wide variety with multiple interest rates, pay back plans, credit limits and penalties if late or over limit. I am finding that credit card companies put in the fine print that they can check your credit when ever they feel like it and if they see your credit score drop below a certain point, that they determine, they can increase your interest rate from that nice 6% you started with to 19, 24 or even 29%. The highest I have seen an interest rate is 33%. I suppose this could go even higher if the credit card companies can get away with it.

It would be important to compare the differences in credit cards not only for interest rates, credit limits and penalty factors, but also for rewards for purchases and length of time with the company. There are cards that give you cash back or cards that give your flight rewards. Some will give you products to choose from a catalogue. If you don’t fly much, then getting a card with flight rewards may not be the best plan for you. Get one that fits your life style and remember to get that card paid off every month or you will be paying for every penny of the “reward” you are getting rather than have it be a great asset for you by paying your card off every month.

New loans always cost you points because they start with an inquiry, don’t have credit history repair services and are usually 100% debt to credit ratio. Be cautious in getting a new loan as it does hit your credit score in 7 different ways as we mentioned in previous secrets.  Know what you need the credit for and don’t just get any credit you can as it will hurt your credit scores. It’s a puzzle that needs a plan and requires careful consideration before plunging ahead. What will it be used for, when will you get it paid off, what will it cost you to get, what is the interest rate and will it help to improve your lifestyle or will it put you deeper in debt?

I have noticed that people are not patient anymore and it costs them in money, in time, in heartache, and in stress and strain on relationships.  Plan ahead, be patient, save, invest, gain knowledge from those who are successful and then be patient again.  My father always taught me, “When in doubt, don’t.”  In other words, wait and see so you aren’t jumping on board a boat that has already left the dock.  You get wet and it upsets the fish.

A rule of thumb to getting new credit is this… get a National Bank Credit Card, get a high credit limit, and keep it for the rest of your life, with a low balance, paid on time, every month… this will create an excellent credit score for years and years to come.

Now go be curageous…

Whenever you have an account that is in good standing, never had any lates and has a history of 7 or more years, these are golden accounts and should be treated like gold. They have the ability to keep your credit score high in spite of the fact that other areas of your credit file may be less than perfect.

For instance, if you had one late on a golden account, then that late really wouldn’t cost you many points at all. The reason is the history and the fact that it is only one late and not multiple lates. One late can be forgiven rather easily, multiples will not. If you have a high debt to credit limit ratio, then the points lost would be minimal because of the long history of the account.

However, don’t get comfortable putting your account in this situation as you can easily destroy the good the history a golden account can create. A second late, keeping a high debt to credit limit ratio can erode your credit score just like anyone else.

Having multiple golden accounts will also increase credit scores as you nurture your accounts into long time good history. Little by little your practice of good financial principles will help you gain credit scores worthy of the best and into the 800’s.