Credit cards and credit score questions

[Russ Smith]

We found out last week that one of my girlfriends cards had been closed with no notice. She's not working currently so she hasn't been using the card and apparently they closed it for lack of use. Does this impact her credit score? We saw someone on tv who said it would, and advised applying for a new credit card as that would indicate the old one wasn't cancelled for any bad reason and the score would go up.

She's not working so I don't see her getting approved on a new card anyways but even if she was working, seems to me like the credit score ranking must already know why the card was cancelled, lack of usage not payment problems? So would getting a new card(if she could) really help the score and does having it cancelled for lack of use really help the score?

Secondary question, both our scores are over 800 when we last checked, does being out of work impact your score if you continue to make all your payments on time? I know the score has something to do with amount of credit available etc but I don't know offhand if income is actually involved in the score. I'm assuming it is but not sure.

 

[Shane]

I dont think it would lower her credit score enough to worry about even if it did. For example if your Credit score is in the 760-800 range depending on the company you use to check it. Lets say they drop your credit 10 points to 750-790. That is still stellar credit rating and no reason just to apply for another credit card. To many credit apps can also lower your score.

Same if you have bad credit. If its bad that 10 point swing isn't making it any worse. Thats even if it is 10 points it could only 2 or 5 etc....

Much ado about nothing Russ. IMO.

Credit ratings ebb and flow like the wind going up or down all the time based on a whole lot of nothing. Its really nothing to worry about.

 

[jefftheshark]

It will effect you negatively if your "used available credit" goes up because of this cancellation.

For example: if you have 3 cards each with 3000 in available credit and two of them are maxed out, while the third is totally unused, then your % of credit used verses available is about 67%. But if they cancel the unused one, then your percentage goes to 100%.

On the other hand, applying for credit has a negative effect on your score too (it's a sign in their eyes of potential desperation). So you need to balance the two concepts to come up with a good solution.

In the long run, you need to monitor your statements every month, as the CC companies are slashing credit lines across the board. If you carry any balance forward, this arbitrary dropping of available credit can lower your scores without you even knowing about it.

JTS

 

[Gizmo Williams]

The amount it impacts her credit score depends on a couple of factors.

(1) If it was the oldest card that she had and none of her other cards have more than say 2 years tenure then there might be a slight hit. The credit scoring model gives people with long credit history a bit of a boost.

(2) If the closed line increased her utilization (Balance/Credit Lines) above 50 - 60% then she would probably see a decrease in her score. Utilization is a pretty significant variable that is used in the credit scoring model.

As far as since it was creditor closed vs. consumer closed...that is not really an issue. The report will say closed by creditor, but the model just picks up whether the account is open or closed.

 

[MigratingOsprey]

Jeff & Gizmo are spot on

The main impact will be age of accounts and utilization. Applying for a new card would be an inquiry, which if she doesn't have any other inquiries going on this one wouldn't fall into a window and would stand alone and cause a potentially negative impact.

Pending the # of cards and credit out there it could be a benefit as well, as long as it doesn't leave unestablished cards as the only remaining and mess up the utilization percentages.

Shane is also right about the level of impact probably being fairly small if she has a well rounded credit history - however, if the sample is small then the impact could be larger.

Also, even though closed, underwriting will still be able to see the payment history on it - even if it was closed by creditor, if she went 5 years without missing a payment and often paid more than the minimum that is a positive.

Jeff also has a good point about watching your limits - BoA slashed my limit on one of my cards (which I would normally be fine with as I had no intention of using it), but it took my utilization for that particular card from around 20% to 98%

 

[Russ Smith]

Thanks, we have been using my cards since I'm getting unemployment and she's not so she has no balance on her other cards. We did use her Visa a couple of times this week just to be sure it won't get cancelled for lack of use.

But we pay the balance in full everytime on all our cards so it sounds like it won't be a big deal.

I was a bit surprised the concept of having an "emergency" credit card is not exactly new, and that's what the card they cancelled was, but apaprently if you're not using the card these days, they just cancel it.

 

[conraddobler]

http://www.myfico.com/CreditEducation/

Ton of this going on.

Biggest disasters I've seen come from people getting whalloped with the convenience checks.

Store takes them, customer thought had a ton of available dollars, in actuality card issuer has already cut the line but not yet informed the borrowers.

The check bounces triggering all sorts of knock on fees and charges and alerts.

 

[jefftheshark]

http://www.myfico.com/CreditEducation/

Ton of this going on.

Biggest disasters I've seen come from people getting whalloped with the convenience checks.

Store takes them, customer thought had a ton of available dollars, in actuality card issuer has already cut the line but not yet informed the borrowers.

The check bounces triggering all sorts of knock on fees and charges and alerts.

I was reading about this very thing last night on Denninger's site (but here is the Bloomberg article that he and CD are referring to): Link

I've been thinking about starting a thread about this topic, FICO scores and such, but hadn't gotten around to it, but I'm beginning to wonder if really makes any difference what someone's score is.

I suppose if you are in the market for a house, it would be. But this might not be the time to buy a house anyway, with all the obvious deflationary signs surrounding us. The CC issuers are cutting credit, not expanding it across the board, with no heed being paid to a persons score, but more due to where they live (and the # of foreclosures in their zip code, for example) and the industry they work in (I now wish I hadn't written Contractor in that innocent looking little box several years ago ).

If you can't get credit regardless of your score, at what point does the score become immaterial?

My feeling is that we should be thinking more and more as a society about going to all cash for our transactions (or debit cards).

JTS

 

[Matt L]

http://www.myfico.com/CreditEducation/

Ton of this going on.

Biggest disasters I've seen come from people getting whalloped with the convenience checks.

Store takes them, customer thought had a ton of available dollars, in actuality card issuer has already cut the line but not yet informed the borrowers.

The check bounces triggering all sorts of knock on fees and charges and alerts.

It's bad enough buying things on credit but the interest on those checks is usually like 25% at minimum. Nobody should ever use those checks for a purchase.

 

[conraddobler]

It's bad enough buying things on credit but the interest on those checks is usually like 25% at minimum. Nobody should ever use those checks for a purchase.

I used them a couple years ago to borrow money at 0 percent no fee.

I still get the offers but if your read the fine print now most have a 5 percent upfront fee.

So if you only have 4 months of free interest you really paid 15 percent interest expressed as an annual rate over the 4 month period not zero.

Then of course after the zero period expires it's likely 20 percent or more and if you're one day late, blam then you're into default rates closing in on 30 percent.

Guido would be proud.

But hey we had to save them all so they'd lend us money.... that we didn't need to borrow.... yeah um that was a great idear.

 

[conraddobler]

I was reading about this very thing last night on Denninger's site (but here is the Bloomberg article that he and CD are referring to): Link

I've been thinking about starting a thread about this topic, FICO scores and such, but hadn't gotten around to it, but I'm beginning to wonder if really makes any difference what someone's score is.

I suppose if you are in the market for a house, it would be. But this might not be the time to buy a house anyway, with all the obvious deflationary signs surrounding us. The CC issuers are cutting credit, not expanding it across the board, with no heed being paid to a persons score, but more due to where they live (and the # of foreclosures in their zip code, for example) and the industry they work in (I now wish I hadn't written Contractor in that innocent looking little box several years ago ).

If you can't get credit regardless of your score, at what point does the score become immaterial?

My feeling is that we should be thinking more and more as a society about going to all cash for our transactions (or debit cards).

JTS

Scores affect more than just your credit, if your score is low chances are they'll blast you for higher insurance rates.

I seem to remember Dave Ramsey saying he dosen't have a credit score and he didn't care.

The only trouble now with that is the following IMO:

With the job market so tight increasingly your credit score matters, is a big corporation going to understand your zero credit score you achieved by having no debts and no active accounts? Good question you'd have to ask them.

You really never know when an employer is actually using that as a deciding factor between you and 10 other people, they have to disclose they're pulling the report and I think tell you what your score was but there is no law telling them to disclose they turned their hand because of that and even if there was you couldn't be sure that's what did the trick unless they said so.

Personally I have to have a high score because lenders judge me by it when I sign up with them but for the average consumer you'd be better off turned down more often than not, but that's just MO.

You really can achieve a good score with relative ease if you just play the system and know what you're doing.

It's the actual credit users that are getting cutoff, because of course they're actually a credit risk.

BTW if the banks expected inflation why would credit be so tight?

That might solve the riddle of the inflatiion deflation debate if you think about it.... after all they are all part of the snake albeit smaller parts.

The secret to a high fico score is to have a good mix of accounts you borrowed money on and are paying, credit cards, mortgage and installment, with installment debt optional.

Use a couple cards that you pay off every month or possibly carry a very small balance to establish payment history.

Presto great credit score.

If you have no active cards and no active debt your score will go to zero, not low, just gone.