topic Re: Reducing CC and Installment Loans in Credit Cards

Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 00:56:21 GMT

Right now here is what I have going on. I thought to share my experience with everyone here because you all have been so much help in my understanding how Credit scoring works. I've read the posts and the advice about not closing old credit cards, and it sounds like really good advice. The ding on the credit report score is one negative marker for closing accounts.

Here is my situation, and then I'll go into why I've made the decision I've made. I'll let everyone here know how my FICO score develops over the next couple of months. I'm trying to get my CR set for a very high score in the next two years. And also reducing the number of accounts I have has the added benefit of reducing the amount of financial clutter I manage.

Although my score is 665, I don't find this alarming because I completely understand why.

Right now I have 18 accounts with balances, three CC with close to max balances, and 7 inquires on record. I have the best credit cards on the market right now, so there isn't any reason to try for anymore.

I've found that AMEX and USAA are some of the best credit cards I've had ever. No annual fees, low interest rates 10.9 - 11.99 respectively. I would not suggest having any credit card from Bank of America because as most people do not know, BOA credit cards are managed by a company called FIA Card Services. They also manage cards by Banks like Sovereign, MSBN, and other main stream banks do not manage the cards they issue. If you never are late, but have a high balance on accounts, they will raise the interest rate.

Credit Profile as of Aug. 23, 2008

Average Age of Credit History - 13 years, 1 month
Average Age of Accounts - 4 years Accounts

Not being Closed
Blue from AMEX - $1254 Bal of 1300 CL / Opened 16 months
BOA Visa - $17 Bal of $10000 CL / Opened 24 months
Car Loan (ChryslerFinancial) - $22239 / Opened 14 months
USAA MasterCard - $6990 Bal of $8000 CL
USAA AMEX - $6991 Bal of $8000 CL
Totals $15252 Bal of $27300 CL (55% Utilization)

Three accounts with high credit balances near CL, so not so good.

Accounts Closed within Last month

CapitalOne Platinum - $123 Bal of $1000 CL
CapitalOne Platinum - $30 Bal of $1000 CL
FIA Card Services (AMEX Credit Card) - $1236 Bal of $2000
Eight Student Loans Closed to Zero Balance Reconsolidated to one loan
Store Card (AAFES) - $615 Bal of $4600

In all I'm closing 12 accounts which should come off my credit report about the same time.

After my CR reflects reality I will have 4 CC with high CL and good interest rates. I also will have two installment loans. I think this is a really good mix for a very solid credit score in the future, but I'm willing to wait and see.

I know everyone always says DON'T CLOSE OLD ACCOUNTS, we'll lets see what happens now.

I have 7 inquires for new credit on record, which is pretty high, but I was trying to get the best credit cards possible, and now I have a good mix of credit.

This is a little experiment, I know most people would not experiment with their financial lives, but then again I just want to see what will happen. I don't need to get any new credit for the next two years.

I've only been late one time, and that was NOV 2002, so that late payment will come off my credit report next year.

I'll post on this thread any changes when myFICO gives me an update.

Feel free to comment on my little experiment. I'm not really sure what my score will be when all my accounts are updated, but I don't think it would drop. It may even go up. Let just wait and see.

myFICO 665 (Aug 23, 2008)

Message Edited by matheinas on 08-24-2008 07:43 PM

Message Edited by matheinas on 08-24-2008 08:56 PM

Re: Reducing CC and Installment Loans

smallfry — Mon, 25 Aug 2008 00:15:36 GMT

Losing your oldest tradeline is going to severely impact your score. You are messing with your average age and will most probably find it is going to bite you once these old accounts fall off. IF you are very young you will definitely recover but this action has cost you 30-40 points you would have had easily. 4 cards is bare minimum and is going to be tough to keep a ratio of cards reporting balances down the road. If you were in slice and dice mode I would have kept the oldest card open.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 01:06:24 GMT

I know what you mean, and I kept the Oldest CC account open (Bank of America CC)

I reconsolidated 8 student loans into 1 big loan.

I'm not really sure how much impact on my average age, all the new CC I opened and then closed will have on my score, but right now I have a total age of 13 years, and average account age of 4 years. That does not go away just closing an account.

These are the CC / Installment Loans I kept:

My oldest account is the Bank of America Account 24 months and largest CL.
Next is Amex at 16 months
and then last is my two new USAA credit cards. only 3 and 4 months old with high CL.

I will also keep my car loan 14 months old.

and a reconsolidated Student loan account.

For my credit Utilization, the CCs I closed had small CL and terrible interest rates.

I don't think the length of my credit will be affected much... due to that the only account I'm closing with more than 6 months history is a capital one account.

I know that the only real difference between an open account and a closed account is the Credit Utilization, and that went up a little bit, but not much.

I think the reduction of the number of installment loans will have a positive affect. 8 loans on my credit report when it really is one loan hasn't been the best for my score.

Now if I had closed my Bank of America CC, that would have been terrible for my Score. Raising my Utilization to 90%, but at 55% it is not great but better than 90%. I'm working on getting those balances down.

Message Edited by matheinas on 08-24-2008 09:01 PM

Message Edited by matheinas on 08-24-2008 09:06 PM

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 01:08:58 GMT

I would say I am just resetting my credit, and then seeing where I'm sitting when everything gets updated. The next credit decision I'll be making is buying a home in 3-5 years.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 01:23:22 GMT

Unless you're paying through the nose for it, never but never close out your oldest accounts. Any account older than the average age of accounts, think twice before closing.

And for best FICO scoring results, whack those revolving balances before paying extra on installment loans. FICO scoring is relatively insensitive to installment balances, but highly sensitive to your CC balances.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 01:32:54 GMT

That is one piece of advice I've heard over and over again on the Forum. Never close out old accounts. Lucky for me, most of my CC are keepers and also my oldest accounts.

I just recently got involved with USAA, and I have to say I wish I would have join up with them years ago. They would have saved me so much money over the last 10 years.

I graduated from college 5 years ago, and before that never really had credit cards. Now I'm 32, and have become really interested in learning how to get and keep a good score.

Re: Reducing CC and Installment Loans

smallfry — Mon, 25 Aug 2008 01:34:32 GMT

How can your oldest account be BofA at 24 months yet your oldest account be 13 years old? You say you didn't close your oldest account. This doesn't quite compute.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 01:35:27 GMT

You said that 4 CC are the minimum, but I've read other places that the ideal number of CCs are between 3 to 6 CC. I would think 4 would be a good number.

Re: Reducing CC and Installment Loans

smallfry — Mon, 25 Aug 2008 01:42:49 GMT

@Anonymous wrote:
You said that 4 CC are the minimum, but I've read other places that the ideal number of CCs are between 3 to 6 CC. I would think 4 would be a good number.

Awful hard to let 1 card report a balance each month. 5 or 6 total cards to work with would be better. Some say the magic number is 40% of revolving lines reporting so 2 of 5 works.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 01:43:02 GMT

My oldest active CC account is 24 months old. But my oldest account on my credit report is my first car loan opened 13 years ago paid in full.

my oldest active installment account is my student loans which are 4 years old.

The difference is between opened and closed accounts.

when my accounts are updated.. my overall age of credit will still be 13 years. but the age of active accounts will be come 2 years, because I reconsolidated my student loans to save $100 a month in interest/principle fees.

I would never close my CC with 2 years history. That would just destroy my score.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 01:50:27 GMT

I understand that, I'm not quite to the point where I can pay all my balances off every month. But I'm working out the right strategy with my AMEX CC. It's a little hard to get the payment dates right. But I'm still working it. I use my AMEX for all my personal expenses but pay in full twice a month, but I still get a balance reported. I just keep trying to get a good plan in place.

Message Edited by matheinas on 08-24-2008 09:50 PM

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 02:30:44 GMT

matheinas wrote:
My oldest active CC account is 24 months old. But my oldest account on my credit report is my first car loan opened 13 years ago paid in full.

my oldest active installment account is my student loans which are 4 years old.

The difference is between opened and closed accounts.

when my accounts are updated.. my overall age of credit will still be 13 years. but the age of active accounts will be come 2 years, because I reconsolidated my student loans to save $100 a month in interest/principle fees.

I would never close my CC with 2 years history. That would just destroy my score.

Your average age isn't 13 years then.... Your oldest account would be 13 years since you opened it and depending on how long it took you to pay off that car it will probably fall of your report soon. Your average card age is maybe one year.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 02:40:45 GMT

I'm still learning about this whole age thing, but the myFICO score report says it is 13 years total credit history and account age of 4 years. And of course I've got like 33 accounts from the last 13 years factored into the mix which makes me believe the 13 year calculation is correct.

Sorry if you are going off incomplete info about my history.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 02:44:38 GMT

@Anonymous wrote:

@Anonymous wrote:
My oldest active CC account is 24 months old. But my oldest account on my credit report is my first car loan opened 13 years ago paid in full.

my oldest active installment account is my student loans which are 4 years old.

The difference is between opened and closed accounts.

when my accounts are updated.. my overall age of credit will still be 13 years. but the age of active accounts will be come 2 years, because I reconsolidated my student loans to save $100 a month in interest/principle fees.

I would never close my CC with 2 years history. That would just destroy my score.

Your average age isn't 13 years then.... Your oldest account would be 13 years since you opened it and depending on how long it took you to pay off that car it will probably fall of your report soon. Your average card age is maybe one year.

The one year for account age is probably right though, if everything was updated. I'm glad I'm done getting new accounts, and can just start building a long account history.

Re: Reducing CC and Installment Loans

smallfry — Mon, 25 Aug 2008 02:49:57 GMT

@Anonymous wrote:
I'm still learning about this whole age thing, but the myFICO score report says it is 13 years total credit history and account age of 4 years. And of course I've got like 33 accounts from the last 13 years factored into the mix which makes me believe the 13 year calculation is correct.

Sorry if you are going off incomplete info about my history.

As FF stated that paid off car loan isn't long for this world.

Re: Reducing CC and Installment Loans

Anonymous — Mon, 25 Aug 2008 12:42:24 GMT

@Anonymous wrote:

@Anonymous wrote:
My oldest active CC account is 24 months old. But my oldest account on my credit report is my first car loan opened 13 years ago paid in full.

my oldest active installment account is my student loans which are 4 years old.

The difference is between opened and closed accounts.

when my accounts are updated.. my overall age of credit will still be 13 years. but the age of active accounts will be come 2 years, because I reconsolidated my student loans to save $100 a month in interest/principle fees.

I would never close my CC with 2 years history. That would just destroy my score.

Your average age isn't 13 years then.... Your oldest account would be 13 years since you opened it and depending on how long it took you to pay off that car it will probably fall of your report soon. Your average card age is maybe one year.

I was looking at my credit report, trying to figure out the average age of my accounts. I found a store CC that I opened 13 years ago but only closed June 07, so that will stay on my report until 2017. I knew there was a reason for the 13 year history. I only wish I had known about the credit length issue before I closed that account last year.