New Here ... Have a Couple Credit Questions

[Anonymous]

Hello All - I've been lurking here for awhile, and decided to join so I could ask a few questions and get in on the conversations.

Here's my backstory: I just turned 24, bought my first house this year, and got married this year. I've had a Discover card for about 2 years, a Chase Freedom card for about a year now, and just this past weekend got an Amex Gold Premier card. I also have a Jared Jewerly store credit card that as of now has a $0 balance, and an HH Gregg card I've had for about 4 years that has a $0 balance. I have a mortgage, but have never had a car loan. Neither my wife nor I have any student loans(she doesn't have any outstanding debt at all, including credit cards or a car loan.) I've never missed a payment, been behind on a payment, nor paid a penny of interest on a credit card. The Jared and HH Gregg were 0% and paid in full before the term ran out, and my Chase Freedom is 0% until February, and it will be paid off before that. I pay my Discover card off in full each month. 

Basically my plan so far has been use my Discover just for gas to earn some points. I got the Chase Freedom last year knowing it was 0% for the sole purpose of building credit and to buy an iPad and pay it off interest free. I then used my bank's check card for normal everyday purchases. After getting an invitation for an Amex Platinum in the mail and looking into Amex's charge cards more, I decided I wanted one. I chose the Gold card because I don't really travel, and it still had great rewards. My plan with the Amex is to basically replace my check card with it, and to rack up rewards points for everyday purchases without ever paying interest. 

My overall credit utilization is somewhere in the 17% range, but I'm anxious to see how that changes once the Amex starts reporting. I'm considering closing my Freedom card once it's paid off, but not sure whether or not that's a smart move. I know that right now age of accounts is my biggest demon with my credit score, but I'm also thinking since all of my accounts are relatively young would it really hurt that much to cancel the Freedom card? My Transunion score is about 770, and my Vantage score is about 830. Obviously, I want both of these to increase. Was I smart to get the Amex, or is it going to hurt me? I'm having doubts now. Basically my question is, how does my current situation look to a lender and how might I go about making it look better? Now that I'm married, plus salary essentially doubling because my wife works, I'm just concerned with our financial future and want to make sure we start off on the best foot. 

Thanks guys in advance for the feedback...I'm looking forward to perusing these boards more often. 

[Anonymous]

You are doing exceptionally well as far as credit standards go. With the revolving credit and the mortgage you have all the proper accounts to satisfy the credit scoring gods. The only thing that might make any further difference in your score in the immediate time frame is your utilization. The best score comes from allowing less than 1/2 of your revolving accounts (in your case one) to report a balance and that being somewhere under 9% but at least 1%) I know you said you pay Discover in full but if you don't pay before the statement date (which is different than the due date) it may report a balance anyway.

As to what credit cards you should keep or close that is a matter of personal choice. You need to determine what credit cards are going to give you the greatest reward for your spending profile and what you want that reward structure to be (Points for merchandise, travel miles or cash). Paying an annual fee on a card (such as Amex) is fine as long as you are getting enough back in perceived or actual value to make it worthwhile. I would not cancel your Chase card before you have evaluated it in this fashion or found something to replace it before cancellation. Having a Visa / MC to backup Amex and Discover is always a good idea.

I would remind you that the worst thing you can ever do in the credit world is pay late and especially over 30 days late so you may want to ensure that all of your accounts are set to auto-pay at least the minimum due each month. I know we never plan on it happening but life has a way of getting in the way of the best plans sometimes.

Congratulations on your great start and welcome to the forums. With the passage of time to add age to your credit profile you will be an example for anyone to emulate in starting out.

[Anonymous]

I appreciate the feedback.

As far as canceling a card, I'm not sure yet. Would I better served to just keep the Chase Card and Discover in addition to the AmEx so that my limit was higher i.e. lower utilization? It's not necessarily a personal preference as to deciding which cards to keep, I just want to maximize the credit benefits.

In regards to my overall utilization, it will be considerably lower once the Chase card is paid off. Again, it's 0% so I've let a bigger balance accrue than I should've, and never would've carried a balance had it not been interest free. As of now, it has I think a $4,500 limit, and I have about $1,800 on it. So in February when the 0% expires, that balance will be zero. That will help considerably won't it? I guess this point even ties back in to my first question; if I paid my Chase card off and then chose to use either it or Discover to pay for gas(they have roughly the same rewards), and didn't use the other card, that would be good right? Then only one revolving account would carry a balance but I'd still have the benefits for the utilization percentage.

Also, you mean paying whatever charges there may be each month before the bill cycles, so that I'd have nothing due on my actual statement, right? That makes sense to me, if that's what you were saying. That way, the card will never report a balance even if it has activity.

[Anonymous]

Forgot to add...I know the $1800 on the Chase card is too much, but I was under the assumption that utilization is evaluated only on an aggregate basis, is that correct? Or is it evaluated for each individual account?

[takeshi74]

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@Anonymous wrote:

My overall credit utilization is somewhere in the 17% range, but I'm anxious to see how that changes once the Amex starts reporting. I'm considering closing my Freedom card once it's paid off, but not sure whether or not that's a smart move. I know that right now age of accounts is my biggest demon with my credit score, but I'm also thinking since all of my accounts are relatively young would it really hurt that much to cancel the Freedom card?

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Have you read the sticky on closing cards?  It's in the Credit Card subforum.  However, there are useful stickies in this subforum as well.

AAoA won't be immediately impacted since closed accounts in good standing report for 10 years.  What is immediately affected is utilization and you can calculate the impact of closing a card.  The general recommendation is going to be to not close cards without an AF but it's really a call that you have to make.  If you're just going to sock drawer the card and not monitor it then it might safer from a potential fraud perspective to close it.

Even though AAoA isn't immediately affected if you want to maximize improvements then you'll probably want to build as much of an AAoA as possible and closing accounts will not help in that regard.

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@Anonymous wrote:

My overall credit utilization is somewhere in the 17% range, but I'm anxious to see how that changes once the Amex starts reporting. 

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You can also manage reported utilization by paying prior to statement close.

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@Anonymous wrote:
Forgot to add...I know the $1800 on the Chase card is too much, but I was under the assumption that utilization is evaluated only on an aggregate basis, is that correct? Or is it evaluated for each individual account?

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Both.  Maxxing out a given card is going to have a negative impact even if overall utilization is relatively low.  That said, 1800/4500 is 40% which is a bit over the generally recommended 30% max but it sounds like it won't take much for you to get it under 30% (and below).

[KoolDev]

Its normally seen as an aggregate number but I have always heard that its best to never get one close to max even if the others carry zero.   IMO, do NOT close those cards yet.  I did that 2 years ago and had no idea what i was doing and ruined an eith year credit history.  If you dont want to use them, find a nice sock in the drawer for them lol

[KoolDev]

+1  Takeshi

Better said.  

[Anonymous]

I've never maxed it out, just had too much on it. But I understand the point you're making. It sounds like I'm going down the right path. 

Does anyone have any further insight into how AmEx reports as far utilization goes? I've read a few things about how they may report a "high balance" as the credit limit, but that if you charge roughly the same amount each month, it can show up as fully maxed or even over 100% utilization.

[Anonymous]

Ok...that was strange. None of those other replies were up at the time of my last post.

Thanks for the advice. I'm thinking if I just pay off the Chase Card and continue doing what I'm doing I'll be in a perfect spot. When the Chase card is paid off, my utilization will drop drastically, and I'll just use all three cards I have intermittently, and then monitor the statement dates as well to manage my utilization that way. When I asked the question, I was leaning toward just leaving all three open, barring some sort of of unseen advice from someone here. Everything I've read basically has said to just leave accounts open, as the benefits outweigh the potential negatives of closing the account. 

[RobertEG]

Closing the card will not impact your AAoA unless the creditor decides to delete the account once it has been closed.

Unless the creditor chooses to delete the account, which they may do so to simply to eliminate any updates, possible disputes, etc., you will retain its age until it gets old.

The immediate impact is the loss of the CL, once the account reaches $0 balance, in the scoring of your overall % util.

The rub is down the road.  The CRAs have a policy of doing their own internal housekeeping to clear their databases of what they consider to have become accounts with limited reporting value to their customers.  That policy is an arbitrary deletion after an account has been closed for approx. ten years, after which most if not all derogs have become excluded under the FCRA.  Thus, their credit histories are of little perceived value, and they clean them out.