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- #651
misfitmorgan
Herd Master
No i can not put DH on the loan the bank requires all borrowers to have a min score of 640 for conventional loans. All accounts on his credit are closed except my credit cards. He just has a few old loans he paid off on it.
Canceling credit cards is almost always bad for your credit score. Your FICO score is based 5 categories. 35% is payment history, 30% credit utilization, 15% is length of credit history, 10% is credit mix, and 10% is new credit.
Payment history is is self explanatory.
Credit utilization is the ratio of credit used compared to total available credit line, this should be 29% or less preferably. This covers all lines of credit including credit cards, retail cards, auto loans, student loans, mortgage, etc. So say all your credit lines together are 50,000k but you are only using 11,000k(22% of available) of your credit lines FICO sees that as good/ideal.(Excellent is 0-9%, good is 10-29%) You are responsible with the amount of credit you could be blowing but your not using.
Also paying a credit card before you get the statement is bad because it will continue to report a $0 balance which is good but your FICO score will stall out because it thinks you just never use the card. You need to get the statement and then wait 2-3 days and pay it off, the 2-3 days is how long after your statement is sent until the credit company reports to the credit reporting agencies. Paying a card in before the due date but after the statement will not charge you interest.
So again take your 50k overall credit line with 11k in debt, now cancel the 20k credit card line, your now using 37% of your available credit line which FICO see's as risky.
Length of credit history is all accounts showing on your credit report. They use the median length. So if account 1 has 3yrs account 2 has 12yrs, account 3 has 6 months, account 4 has 5yrs...credit history would be 61.5 months aka 5yrs 2months. Often a bank will look at your credit and say you have accounts older then 2yrs so its ok, but sometimes nope. FICO uses the median score to determine credit score which is why getting several new lines of credit in a short period of time kills your credit score. So if the credit card your gonna cancel is the 12yr one your new credit history is 34months aka 2yrs 10 months. Which would drop your credit score...conversely though. If the account you wanted to cancel was the 6 month old one it would raise your credit history to 80months aka 6yrs 8months.
You need to keep current debt reporting on your credit. After a certain length of time which varies per item type they fall off your credit(it is not 7yrs for all) and i know many people in their 50-60s atm who have gone to get a loan for something and been told their credit was only in the low 700s, these are people who had scores in the 800s only a few years ago. All of their credit stuff got aged off their reports and as they did their scores dropped because length of credit history, credit lines, on-time payments etc all fell with it.
I experienced the same thing. I had a credit score of 786 which is good for my age, everything fell off my report and i went to get my car lease and i was told me score was 487....thats when i learned exactly how credit works cause that was only 2.5yrs ago. I had to get the lease with insane interest rate and a secured credit card and build back up. It sucks.
The credit risk for lines of credit was the old FICO model/thought process....the new model sees credit lines as good with low usage. Which is why your credit company gave you a 20k line, not to use all 20k but so you had an easier time keeping large occasional usage under 29% of your credit limit. They do try to look out for you a bit even though i know most people see credit card companies as evil.
Canceling credit cards is almost always bad for your credit score. Your FICO score is based 5 categories. 35% is payment history, 30% credit utilization, 15% is length of credit history, 10% is credit mix, and 10% is new credit.
Payment history is is self explanatory.
Credit utilization is the ratio of credit used compared to total available credit line, this should be 29% or less preferably. This covers all lines of credit including credit cards, retail cards, auto loans, student loans, mortgage, etc. So say all your credit lines together are 50,000k but you are only using 11,000k(22% of available) of your credit lines FICO sees that as good/ideal.(Excellent is 0-9%, good is 10-29%) You are responsible with the amount of credit you could be blowing but your not using.
Also paying a credit card before you get the statement is bad because it will continue to report a $0 balance which is good but your FICO score will stall out because it thinks you just never use the card. You need to get the statement and then wait 2-3 days and pay it off, the 2-3 days is how long after your statement is sent until the credit company reports to the credit reporting agencies. Paying a card in before the due date but after the statement will not charge you interest.
So again take your 50k overall credit line with 11k in debt, now cancel the 20k credit card line, your now using 37% of your available credit line which FICO see's as risky.
Length of credit history is all accounts showing on your credit report. They use the median length. So if account 1 has 3yrs account 2 has 12yrs, account 3 has 6 months, account 4 has 5yrs...credit history would be 61.5 months aka 5yrs 2months. Often a bank will look at your credit and say you have accounts older then 2yrs so its ok, but sometimes nope. FICO uses the median score to determine credit score which is why getting several new lines of credit in a short period of time kills your credit score. So if the credit card your gonna cancel is the 12yr one your new credit history is 34months aka 2yrs 10 months. Which would drop your credit score...conversely though. If the account you wanted to cancel was the 6 month old one it would raise your credit history to 80months aka 6yrs 8months.
You need to keep current debt reporting on your credit. After a certain length of time which varies per item type they fall off your credit(it is not 7yrs for all) and i know many people in their 50-60s atm who have gone to get a loan for something and been told their credit was only in the low 700s, these are people who had scores in the 800s only a few years ago. All of their credit stuff got aged off their reports and as they did their scores dropped because length of credit history, credit lines, on-time payments etc all fell with it.
I experienced the same thing. I had a credit score of 786 which is good for my age, everything fell off my report and i went to get my car lease and i was told me score was 487....thats when i learned exactly how credit works cause that was only 2.5yrs ago. I had to get the lease with insane interest rate and a secured credit card and build back up. It sucks.
The credit risk for lines of credit was the old FICO model/thought process....the new model sees credit lines as good with low usage. Which is why your credit company gave you a 20k line, not to use all 20k but so you had an easier time keeping large occasional usage under 29% of your credit limit. They do try to look out for you a bit even though i know most people see credit card companies as evil.
LL Bean gives you a month so I pay it (online through the CU) 5 days before, just in case there is some delay.
