Credit Questions

[srayton]

Good Morning:

Looking to POF credit cards and installment accounts in the next few months.

I have good payment history 2 yrs+

But credit balances are high (again paying these off and keeping at a 0 balance and/or really low in a few months with the exception one card will be at 10 balance)

How long should I keep an installment personal loan account before I pay it off?

How many credit cards should I have?

Have a total of 5 revolving credit cards 2 with CAP ONE 2k limit, 320 limit and one First Premier 400 limit, and two store cards

had the FP account since 2009 looking to PIF and close by November.  I hear it's ideal to have 3 to 4 credit cards.

Does this include retail or store cards?

Should I replace the FP credit card with a better credit card or just keep the two CAP ONE and the two retail accounts?

[IsleSeat]

Hello and Good Morning,

I have been there, where you started. Pay off all those cards if you can and the installment loan as well. Do NOT apply for any credit in the next couple of years, but you may try in 6 months, after your cardsare paid, to ask the existing card issuers for a CL increase.

Once again, pay all you cards off, completely. Rotate each card with a $ 5.00 balance reporting, paying the others off.

No new credit, no lates, no inquiries and live on a cash (ATM) basis.

[RobertEG]

In scoring of util of credit, FICO scores balance remaining on installment loans at a MUCH lower weighting than & util of revolving accounts.

Paying down/off installments wont produce the same benefit as paying down % util of revolvint accts. 

Additionally, the %APR on installments is usually lower than the %APR on credit cards, so from a financail point of view, putting the bucks towards revolving debt usually makes more sense. 

As for the number of CCs, opinions vary.  Since FICO places great emphasis on showing of effective use of discretionary credit, having mutiple revolving is clearly beneficial.  It seems that having at least three satisfies the FICO gods, with more than that having side benefits

FICO scoring or uttil of revolving has three componenst..... overall % util, individ % util of each card, and % reporting a monthly balance..  The least signiificant of those three appears to be % reporting a balance.  More cards means a higher number in the denominator of that ratio, and thus can improve % cards reporting a balance. 

Kinda a complicated system with no specific weightings disclosed, so kinda hard to pinpoint impacts.

Whether or not to app for new cards is also a bit complicated.  Higher CL and/or better APR terms have their own benefits apart from siimply FICO scoring, giving more spending flexibility.  How important is that?. 

However, any new card will lower your avg age of accounts, so impact on your current AAoA is a factor.

They usually also come at the expense of a hard pull, which affects scoring for a year.  If not planning to use your score for a major credit approval in the next year or two, those shorter term effects tend to dimiinish.  However, if you need your score for necessary or major credit within the next year or so, it is probably not wise to seek more trade lines, particularly when you already have what is probably a sufficient number of currrent revolbing accts.

Closing current CCs may be wise if they have an annual fee, but otherwise, it is usually best to keep them open and their util low.

Closing could result in the creditor simply deleting the entire account, resulting in a loss of the CL on the card, and its age in your AAoA calculation.

[takeshi74]

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@srayton wrote:

How long should I keep an installment personal loan account before I pay it off?

How many credit cards should I have?

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There are no one-size-fits-all answers for these questions.  Each person needs to assess his/her own credit to answer these questions.  The decision on installment loans isn't just a matter of "How long?" but of your other debt as well.  If the interest rate is low it doesn't make much sense to carry higher interest rate debt and pay off the installment loan.

Number of cards really doesn't mean anything in and of itself.  Generally speaking it's better to have more credit accounts.  However, that doesn't mean that everyone should go out and open a bunch of credit card accounts.  Always consider the standard factors that affect your credit: utilization, AAoA, inquiries, payment history, dreogatory information, etc.  You also have to consider how well you can manage your credit card accounts.  Some people should have few credit cards.  Some can have however many they want.

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@srayton wrote:

Should I replace the FP credit card with a better credit card or just keep the two CAP ONE and the two retail accounts?

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You should get your utilization down and reporting before you worry about opening new credit card accounts.  You want low utilization but not 0 utilization.

[srayton]

Well my plan was  to pay off my revolving accounts to a 0 balance with exception of one leaving that with a low balance, close 1 of the accounts overall.....to only leave me managing 4 revolving accounts instead of 5.  I have an installment loan that was open last month, I will being paying that of April 2014.  Is everything that I just stated above effective and a good idea???  I don't have any major credit moves I'm trying to make in the next year or so.  I plan on paying everything off and down and give me credit a break for a while and let my accounts in "good standing" age a little bit.  I just wanted to avoid paying off the installment loan too early and it doesn't effect my credit in a positive way.