advice on good mixture of credit

[Anonymous]

Hi all,
This is my first post on this forum...you all give such good advice. Thank you.

Alright so here's my deal. I have 5 CCs and a good amount of student loans. I had two dept store cards from a few years ago and had actually forgotten about them until I looked at my credit report and saw them there. In October, I was notified that they closed my dept store cards because they had been inactive for a long time. I called to see if anything could be done, but they said I would need to apply for a whole new card. In the last four months, my credit score has declined slightly and I think it's because of the store cards.

What exactly is affecting the drop in the score? Is it because the amount of credit available has dropped? Because I don't have as much variety or as much of a mix of CCs? I could look at my other CC's and see if I could get a balance increase (I've had these cards for awhile and haven't requested one yet). Or, should I apply for a new dept store card? I just don't want to apply for new credit unless it would help my score. The last time I applied for new credit was about a year ago, so I'm trying to avoid doing that and risking a drop in my score. However, if this is necessary to achieve a good mix of credit, I'm all for it.

Any advice?? Thanks in advance

[haulingthescoreup]

There does seem to be anecdotal evidence that adding a pure store card (no Visa, MC, etc logo) helps your credit mix and therefore your score. We also had a member report that he got a better insurance rate from doing so, go figure.

Your call as to which way you want to go. As best as I can tell, in most cases there's no penalty for having only one inquiry per bureau on your reports. In other words, one won't affect scores, two or more will. But there is that new account penalty.

If you don't feel the need for a particular store card, it might not be worth it. If you do decide to do so, I'd be very careful about the bank behind the store, especially staying away from cards backed by GEMB and HSBC. Citi seems to be circling the drain these days, so I don't know if that would be a problem, but at least they've been behaving themselves with their customers. So far.

[Anonymous]

Alright, makes sense. So I don't necessarily want to apply for a new dept store card. But what can I do to prevent the closing of these cards from having a negative impact on my score? Or, what can I do to compensate? Would requesting an increase in credit limits on my CCs make a difference? I'm just thinking that with the closing of those cards I lost some of my available credit, so perhaps getting it in other places would help. I currently carry $0 balance on all credit cards, but still have a good amount of debt with student loans....so about 50% of my total accounts have balances. I use my CCs every now and then to show activity and I pay everything on time. What else can I do to boost my score? THANK YOU

[haulingthescoreup]

OK, the possible negative impact of getting cards closed on you:

-- rise in overall util, if you have balances post, as the CL of closed cards is removed from the denominator
-- in ten years time, if the CRA's continue to report the accounts during the interval, they'll finally fall off, and you'll lose history
-- fewer open accounts with $0 balances to counteract open installment accounts, which always have balances.

eta: Although the scoring formula does look at util (balance owed divided by credit limit) for installment and mortgage accounts, it carries much, much less weight, and it is calculated separately from revolving/ CC debt. So it's the CC debt that is to be concerned about.

If you have a credit profile that periodically is hit with the "too many accounts with balances" (I don't think that everyone is), you probably want to have 3 or 4 more open CC's than you have open installments, including SL's, auto loans, mortgages, and personal loans. That way, even if one or two CC's post a balance, you should be able to have half or fewer total accounts reporting balances.

But the ding from "too many accounts with balances" is generally less than the ding from opening new accounts, so unless it makes sense in your overall financial picture to get a specific card (i.e., the PenFed Plat Visa for the 5% cash back on gas), I don't think it's worth it, especially when lenders have the jitters so badly.

I think that if/ as you consolidate student loans, you'll have fewer open loans showing, and that helps the ratio, also.

And it sounds like you know this, but if you pay all but one of your CC's off several days before they report, which is usually on their statement dates, and just let that one card report $10-20, your reported util will be very, very low. This used to be a bit of a game for scoring purposes, but these days it might be pretty wise, what with the banks running around imitating Chicken Little.

For anyone else scratching their heads over this, I recommend reading fused's "Closing Credit Cards", which is linked in my siggy.

Message Edited by haulingthescoreup on 02-25-2009 03:40 AM