December 08, 2009
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'POP!' Goes the CC Score Myth, Pt.2
It doesn't get any better (and won't).So much as for straight logic. Always paying on time won't help your credit card score (but, beware of the converse). Carrying a running balance won't help your credit card score either (although most credit card lenders encourage it and make lots of money off it). What other goodies do we have?
Myth 3: Closing (or not closing) credit card acc'ts improves a score:
Obviously, there are two camps here. Unfortunately, neither one can stand unconditionally. It used to be that having too many credit card acc'ts open at the same time deemed you irresponsible. 'FICO 08' standards changed all that. Now having a bunch of accounts open in good standing is supposed to be a good thing. Problem is, much of the credit card industry is lagging behind upgrading to the new standards set down by FICO. Two years ago, I was carrying 35 open credit card accounts open and all in "good standing". Between them all, about $300,000 in credit ($100,000 just from one card). I had a $6,000 card of choice from Chase (low APR) and when I exceeded my U/R safe-limit (30% U/R:), I asked for a limit increase. I was slightly over my safe-limit ($2,000, or 33% U/R). The response from Chase was "Uh uh, you're over in-debt". They refused me for owing too much, even though I had hundreds of thousands in unused debt from other lenders. So, I maxed out the Chase card, paid it in full and now I don't use it any more. That must have made 'em happy.
If the new FICO standard is followed, closing a credit card account will lower your total credit limit, thereby limiting the amount you can borrow without hurting your credit score. You should not borrow over 30% of your cumulative credit limit of all cards (or in the case of Chase, 30% on an acc't by acc't basis). In today's climate, your credit card score won't improve no matter but, it could go down.