topic Re: Close old credit card and/or increase limit on new one? in Credit Cards

Close old credit card and/or increase limit on new one?

raistlinux — Mon, 23 May 2011 20:00:55 GMT

Hi all - I just recently joined a new credit union and they offer amazing rates, better than my previous CU... partly because over the last 5yrs I've done well with the old one and built up my score (thanks to them really) to have access to better rates. Still the new one is better. Since the new one is so great, I decided to refinance my two car loans and open a new credit card for the purpose of transferring my old credit card balance to them... saving good money in the process. Here's my question... At this moment, I now have two cards open with 5,000 limit each, so I've inadvertently increased my available revolving credit. Truthfully I intended to close my old credit card because I no longer need it. But all the advice I'm reading says NOT to close the old card because of my revolving credit ratio which I should try to keep low (~30%). If I close my old credit card account, my ratio will increase to 50% and possibly affect my score.... I'll be back to where I started (same limit as before) and without the good, long payment history from the old CU. HOWEVER, wouldn't it be the same if I close the old credit card and simply ask for a credit limit increase on the new card?? This would keep my new revolving credit limit the same as today and still have the lower ratio. Although the history would be gone from the old card. As a side note, after a few weeks of moving all these loans around, I half expected my fico score to drop a bit because of the opening of accounts on my credit report, but instead I just got an alert from Experian saying it jumped 3pts. I'm now happily over 700 and would like to continue improving my score. Any feedback and advice on my situation would be much appreciated! Thanks in advance! Rafa.

Re: Close old credit card and/or increase limit on new one?

UFGuy2006 — Mon, 23 May 2011 20:04:35 GMT

raistlinux wrote:
Hi all - I just recently joined a new credit union and they offer amazing rates, better than my previous CU... partly because over the last 5yrs I've done well with the old one and built up my score (thanks to them really) to have access to better rates. Still the new one is better. Since the new one is so great, I decided to refinance my two car loans and open a new credit card for the purpose of transferring my old credit card balance to them... saving good money in the process. Here's my question... At this moment, I now have two cards open with 5,000 limit each, so I've inadvertently increased my available revolving credit. Truthfully I intended to close my old credit card because I no longer need it. But all the advice I'm reading says NOT to close the old card because of my revolving credit ratio which I should try to keep low (~30%). If I close my old credit card account, my ratio will increase to 50% and possibly affect my score.... I'll be back to where I started (same limit as before) and without the good, long payment history from the old CU. HOWEVER, wouldn't it be the same if I close the old credit card and simply ask for a credit limit increase on the new card?? This would keep my new revolving credit limit the same as today and still have the lower ratio. Although the history would be gone from the old card. As a side note, after a few weeks of moving all these loans around, I half expected my fico score to drop a bit because of the opening of accounts on my credit report, but instead I just got an alert from Experian saying it jumped 3pts. I'm now happily over 700 and would like to continue improving my score. Any feedback and advice on my situation would be much appreciated! Thanks in advance! Rafa.

I would not close the card with the good payment history. Why not just leave it open? If there is no AF and its a decent card, just sock drawer it.

Re: Close old credit card and/or increase limit on new one?

stanggt03 — Mon, 23 May 2011 20:16:04 GMT

Nope I wouldn't close it. You've had it a long time. The length of time, plus the additional available credit, will really help your score. Sock drawer it, as stated above.

Re: Close old credit card and/or increase limit on new one?

mauve — Tue, 24 May 2011 01:14:33 GMT

1) You won't lose AAoA over closing that account - once closed, it should contribute to your AAoA for 10 years from date of closure.

2) utilization is 30% of your score. For ideal utilization, you want a balance reporting on LESS THAN HALF of your open revolving credit lines. Well, even better is to have all but one credit line reporting 0% utilization and that one should report less than 9% utilization. You'd need a minimum of 3 open revolving credit lines to maximize this part of your score.

So, don't worry about the AAoA, but I'd definitely opt for getting to 3 revolving lines and not staying at 1, which is what it sounds like you're debating doing.

Re: Close old credit card and/or increase limit on new one?

AndySoCal — Tue, 24 May 2011 02:13:48 GMT

I would not close the account. I would use the card two to three times a year or more. FICO likes a long credit history. My oldest card 20+ years and will be used for many more. I have another card which is closed a retailer that cloed that has 28 years of histroy.

Re: Close old credit card and/or increase limit on new one?

raistlinux — Tue, 24 May 2011 06:09:08 GMT

Hi mauve - wow, super helpful information... This is exactly the kind of information I need!

So I should have three lines? That's surprising, but it makes sense if the bureaus want to see that you have credit available to you... like having options. So I should shop around for another card? Or a retail card?

And just to clarify one thing, the overall balance should be less than 50% across all lines of credit? Or less than 50% per line?

Where do you get these guidelines, rules, dos, don'ts (like utilization details)?? I used to have a score in the high 500s and now 5yrs later I've just made it past 700 so I've been working hard to get it together... I need it to get better rates and buy a home in the next 5yrs. If you have any references that I can read, I would appreciate it greatly.

Thanks!!

Rafa.

Re: Close old credit card and/or increase limit on new one?

raistlinux — Tue, 24 May 2011 06:14:23 GMT

Forgot to mention that I've decided to keep the other line open and use is sparingly as suggested. And I suppose I will investigate getting another.

Luckily I didn't get a chance to close my old card, so I'm very appreciative of the help and will continue to use the forums here for future help.

Cheers!

Rafa.

Re: Close old credit card and/or increase limit on new one?

beamMEup — Tue, 24 May 2011 08:08:25 GMT

Good. I"m glad you kept it open.

One of our best threads is fused's Closing Credit Cards which is helpful in understanding the impact of closing cards.

You'll do great FICO wise to let one card report a zero balance and let the other one report (as little as possible- ideally less than 9%.)

IMO, Opening a third card right now will probably cost you FICO points. YMMV and you'll be fine with either two or three cards. You'll want to watch your AAofA, though. IMO, let your new account age for 12 months and then consider opening a third. But you'd be fine for a very long time (forever) with just the two - if that's the way you like it. And you'll do best with the reporting strategy of one reporting a zero balance and the second reporting below 9% (when you get there).

Congrats on that new card! And it never hurts to ask for a CLI - which would help your utilization while you're paying down the balance - and your FICO score.

Re: Close old credit card and/or increase limit on new one?

mauve — Tue, 24 May 2011 14:11:15 GMT

It can hurt to ask for a CLI - Chase, for instance, told me when I asked the question that if they decide to up your CL during an account review, it's a soft pull and that if you request a CLI they do a hard pull. Also, if OP is in the 700's, why not just get a 3rd card now instead of waiting another year? Doing it now means that in a year that inquiry will be off and the 3rd card will be a year old instead of 0.

beamMEup wrote:
Good. I"m glad you kept it open.

One of our best threads is fused's Closing Credit Cards which is helpful in understanding the impact of closing cards.

You'll do great FICO wise to let one card report a zero balance and let the other one report (as little as possible- ideally less than 9%.)

IMO, Opening a third card right now will probably cost you FICO points. YMMV and you'll be fine with either two or three cards. You'll want to watch your AAofA, though. IMO, let your new account age for 12 months and then consider opening a third. But you'd be fine for a very long time (forever) with just the two - if that's the way you like it. And you'll do best with the reporting strategy of one reporting a zero balance and the second reporting below 9% (when you get there).

Congrats on that new card! And it never hurts to ask for a CLI - which would help your utilization while you're paying down the balance - and your FICO score.

Re: Close old credit card and/or increase limit on new one?

MarineVietVet — Tue, 24 May 2011 14:15:16 GMT

raistlinux wrote:
Hi mauve - wow, super helpful information... This is exactly the kind of information I need!

So I should have three lines? That's surprising, but it makes sense if the bureaus want to see that you have credit available to you... like having options. So I should shop around for another card? Or a retail card?

And just to clarify one thing, the overall balance should be less than 50% across all lines of credit? Or less than 50% per line?

Where do you get these guidelines, rules, dos, don'ts (like utilization details)?? I used to have a score in the high 500s and now 5yrs later I've just made it past 700 so I've been working hard to get it together... I need it to get better rates and buy a home in the next 5yrs. If you have any references that I can read, I would appreciate it greatly.

Thanks!!

Rafa.

Hi there and welcome.

Here is a thread talking about What's In Your Score? It breaks down how FICO scores different aspects of your credit profile.

As far as how to use your cards for maximum benefit of utilization everyone's situation is different and there is no one size fits all approach to this but what seems to work well for most people is to have only one of their cards report a small (<9% of it's credit limit) balance each month and then pay in full before the due date. You can use it as much as you want during the month but what's important is the reported balance because for most cards whatever is reported on the monthly statement is what is used to calculate utilization for the month.

On any other cards always try and have them report a zero balance each month. That doesn't mean you can't use them just make sure that the desired zero balance on these accounts is achieved several days before their statements post.

You might have to play around with the percentages for a few months to see what works best for you. Some people say that 1-3% utilization helps the most. For others it might be 5-9%. As I said it's not one size fits all.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Re: Close old credit card and/or increase limit on new one?

raistlinux — Wed, 25 May 2011 01:03:42 GMT

Hi all - this might sound a little silly but it turns out I do have three revolving lines... I decided to look at my latest credit report today (after all this discussion) and I have a credit line I opened a few years ago strictly for medical use called "Care Credit". Not sure if you have heard of this, but I do have a $5K limit with only a few hundred dollars on it at the moment. It isn't a VISA, MC, AMEX or Disc, but does this still count toward my 3rd revolving line of credit? Thanks, Rafa.

Re: Close old credit card and/or increase limit on new one?

MarineVietVet — Wed, 25 May 2011 03:47:22 GMT

raistlinux wrote:
Hi all - this might sound a little silly but it turns out I do have three revolving lines... I decided to look at my latest credit report today (after all this discussion) and I have a credit line I opened a few years ago strictly for medical use called "Care Credit". Not sure if you have heard of this, but I do have a $5K limit with only a few hundred dollars on it at the moment. It isn't a VISA, MC, AMEX or Disc, but does this still count toward my 3rd revolving line of credit? Thanks, Rafa.

My Care Credit card reports as a revolving account. You can see if yours does by looking at how it shows on your credit reports.

Re: Close old credit card and/or increase limit on new one?

beamMEup — Wed, 25 May 2011 04:00:53 GMT

My Care Credit reported (properly, I might add) as a revolving account as well.

That's nice - Care Credit tends to give fairly healthy CL's. IMO it's a PIF-ASAP card. :smileywink:

Re: Close old credit card and/or increase limit on new one?

score_building — Wed, 25 May 2011 07:44:51 GMT

beamMEup wrote:
My Care Credit reported (properly, I might add) as a revolving account as well.

That's nice - Care Credit tends to give fairly healthy CL's. IMO it's a PIF-ASAP card. :smileywink:

+1 on PIF ASAP, due to the way interest accrues, must be mistaken but thought previously posted Care Credit acct (improperly) reported as a CFL.

Re: Close old credit card and/or increase limit on new one?

beamMEup — Wed, 25 May 2011 12:42:33 GMT

Thanks to these forums, we (that means I :smileywink: ) have learned that as far as FICO is concerned, accounts must be installments to be categorized as a Consumer Finance account.

For FICO scoring purposes. i.e. if you are hit with FICO code # 6 (Too many consumer finance accounts) it is referring - always - to an installment account.

Just to clarify - Consumer Finance Accounts are always baddies (though some say they do not have a huge FICO impact). Having even one CFA is too many as far as FICO is concerned. When they're closed, and when they age, their impact is minimized but they still have an impact as long as they are on your CR's. DH has one (two, actually) and they still show up as a FICO derogatory code when his FICO score is pulled. They will age off next year, IIRC.

edited for clarity

Re: Close old credit card and/or increase limit on new one?

score_building — Wed, 25 May 2011 12:59:54 GMT

IIRC there were a few isolated posts citing Care Credit, a revolving acct., as improperly reporting as a CFL.

Re: Close old credit card and/or increase limit on new one?

beamMEup — Wed, 25 May 2011 13:19:05 GMT

score_building wrote:
IIRC there were a few isolated posts citing Care Credit, a revolving acct., as improperly reporting as a CFL.

Ach!!! that was probably me!!! :smileysurprised:

A while back, and when I was relatively new here, I did have a note on my Care Credit inquiry that it was for "consumer finance" on one of my FAKO score reports (CCT - IIRC). And I did have a note on my FICO report pulled here that I had too many Consumer Finance accounts. Very very confusing to me.

But FICO doesn't put revolving accounts in the CFA category - so my Care Credit has never been seen as a Consumer Finance account by FICO, in spite of how my CCT report categorized the inquiry. When I learned how FICO viewed the account, I posted the corrected info (hopefully on each and every one of my posts that indicated anything to the contrary :smileyindifferent: )

This was part of how I learned to discount some of the info (and the FAKO scores) on CRMS pulls. :smileysurprised:

It turned out that the CFA that FICO was recognizing (and scoring me on) was a mortgage (through Litton IIRC). My Care Credit account was not the culprit.

Care Credit still gives me the willies, though, because of their financing terms. I closed mine and use my local CU account for medical instead. Same CL as Care Credit, but I sleep better if I have to carry a balance for a short while.

Sorry if this thread has been totally hi-jacked.

Re: Close old credit card and/or increase limit on new one?

score_building — Wed, 25 May 2011 15:21:52 GMT

I see beam, gotcha, thanks for the helpful clarification and rejoinder on the topic in any case.

would imagine many have sought more clarity on this somewhat intermediate/advanced topic, and appreciate that you highlighted important info. about CFLs and to avoid these types of accounts, since when one reports it is always (somewhat) a neg. entry.

Perhaps since they generally tend to cater to more risky borrowers they get a ding by FICO unlike more solid TLs (don't think that is common knowledge with all the new members and even some vets.) I support your well conceived decision to bag Care Credit for a non predatory CU product, even though it has worked out for me so far. Good going with your forward thinking, I may eventually cancel for the same reason.

OP please forgive me for going astray briefly...now back to the regularly scheduled OP :)