DH and I just got 100% out of debt. He wants me to cancel our only credit card (besides the retail card i've had for years) for good reasons, he is an impulse buyer and doesn't want to be tempted. I've always used the excuse in the past that we should keep the card for emergencies but it all honesty, we have super credit and could go out and get a credit card very easily if an emergency did occur. But is not having ANY credit card bad for us, credit wise? I was almost tempted to cut up the cards and "forget" to cancel the account so that we still have some sort of revolving credit out there but what good would that really do if we don't use the account? Is it better just to cancel the card in this situation?

By Yjja123 on Friday, December 7, 2007 - 10:10 am:

It will lower your credit score to cancel it!
I would cut it up or stick it in the freezer instead.

By Reds9298 on Friday, December 7, 2007 - 10:14 am:

My sister is a banker and I learned from her (much to my surprise) that having a credit card and actually carrying a balance increases your credit score. It doesn't matter if the balance is $100 and you pay on it monthly, you are increasing your credit score. She told me that paying everything off every month (like we have always done) is actually not helping your credit at all.

Makes no sense to me, but apparently that's the way it is. I personally would always keep one credit card just for emergency where you can't access cash very quickly or can't wait for a new credit card. I always think of my car breaking down, needing a big repair, and not having the cash on hand or not being able to move the cash quickly from my savings to my checking in order to debit it.

By Reds9298 on Friday, December 7, 2007 - 10:15 am:

Ditto Yvonne! My sister also told me never to cancel accounts because it DOES lower your credit score. We were posting at the same time and I forgot she had told me that.

By Cocoabutter on Friday, December 7, 2007 - 10:56 am:

Having a credit card with a balance of more than half of the available credit does hurt your score. Keep your balances to 20% or less of available credit to avoid hurting your score. And actually closing the account hurts your score by increasing your balance-to-limit ratio. The less credit you have available to you, the higher the ratio is.

http://money.cnn.com/2002/02/15/debt/q_fivethings_creditscore/

In addition, cards that aren't used can not contribute to a payment history.

http://bad-credit.interest.com/bad-credit/improve_fico_credit_score_11062007.html

By Anonymous on Friday, December 7, 2007 - 11:01 am:

So if I keep the account active and just cut the cards that would prevent my score from lowering but non-use wouldn't really raise my score, right? Aren't there other things that help a credit score besides a credit card? We just paid off our vehicle loans so I know that will look good once reflected on our credit. Our credit is in the excellent range, score wise so i'm not concerned in actively doing things just to raise it more. I'm just thinking that until DH can get his impulse buying under control more this may be the better/somewhat temporary option? I don't know.

By Cocoabutter on Friday, December 7, 2007 - 11:05 am:

Sorry, I was adding to my last post at the same time you were posting.

Right - non use will not help you get any loan you might need in the future. A potential lender needs to see that you have good payment history. But if you aren't anticipating any more debt any time soon, I see no problem with just hiding the card in the cookie jar for a few months until your hubby gets into the habit of responsible spending.

Did you pay off your mortgage, too?

By Anonymous on Friday, December 7, 2007 - 11:19 am:

No mortgage. We don't own a home. We may buy in the next two years or so though.

By Ginny~moderator on Friday, December 7, 2007 - 11:43 am:

I agree with others above. And, as I understand it, part of your credit rating depends on the age of existing credit accounts. If you've had this card for quite a while, if it were me I would not cancel it. What I would do is NOT carry it, or at least not let DH carry it, but keep it in a safe place at home and use it once or twice a year for something you were going to buy anyhow, just to keep the account active.

By Enchens on Friday, December 7, 2007 - 12:34 pm:

Yup, don't do what I did. After I got married, I cancelled all my own credit accounts and got added to my dh's accounts. That hurt me badly. I also found out that just because I was added to his account didn't mean that I was still getting credit for having credit. I was an authorized user, not an account holder. I just recently got my own credit card and now am starting over. So, yes, keep it.

By Kym on Friday, December 7, 2007 - 12:44 pm:

Another POV, we have followed Dave Ramsey's plan for almost a year now. Check it out www.daveramsey.com, it gives a different aspect on your credit score.

Congratulations on being debt free! We are three car payments away....plus a mortgage! But it's so nice to only have ONE payment in our sights

By Reds9298 on Friday, December 7, 2007 - 02:37 pm:

I remember my sister talking about a percentage of your cc debt that Cocoabutter mentioned that should not be exceeded, but I couldn't remember. I never listened to that part very well since it didn't apply.

By Cocoabutter on Friday, December 7, 2007 - 02:53 pm:

I browsed Dave Ramsey's website and really didn't find where he said anything about maintaining a credit card to keep your credit score alive. But I did find where he says that you shouldn't need credit to get a mortgage. It's called "Manual Underwriting." I think that he basically thinks that lenders who offer mortgages only based on your credit score are lazy. Banks can sit down with you and go over your expenses and income and decide what you qualify for. They don't need your credit score to determine how well you pay your bills.

Am I right?

By Yjja123 on Friday, December 7, 2007 - 04:13 pm:

I do not know if that is right. I know when we wanted to buy a house, we were told to get a few cards. The mortgage co wanted us to have more credit history to increase our score. We also had car loans to show payment history.
I think keeping a credit card, and using it responsibly, is easier than trying to get a mortgage without established credit. You want the best possible score, so you can get the lowest interest rate available.
I do not know who Dave Ramsey is, but we use credit cards and pay them off every month. We like the points/benefits we receive from the cards. We do not pay interest.

By Vicki on Friday, December 7, 2007 - 04:56 pm:

If it were me, I would keep the card, not let dh use it and actually, you should use it and pay it off as often as you can. Dh works with credit and we have two credit cards that we use and pay off every month. You need to show active credit and active payment. We use one card for nothing but gas purchases and pay it off monthly. We also have another card that I will use at places like WalMart and the grocery store etc and again, pay it off monthly. The higher you can get your credit score, the better it will be for you when you do go to get a home.

By Mrsheidi on Friday, December 7, 2007 - 06:34 pm:

For the first time in my life, I will "ditto Ginny". I must be getting wiser.

We just paid for Scott's Jeep outright with cash and bought a house. The mortgage broker, who is a good friend of ours, said that the longer you have the CC's, the better your score is. ANd, yes, the percentage of borrowed vs. what you *could* borrow must be low. I've asked my CC companies to increase my credit allowance and they did. We never use it, but it makes our credit better. We're both in the excellent range now but keep our CC's on hand when we don't have that extra $500 in there for car emergencies, etc. We pay that off when we can extract from our car savings account.

Keep it, hide it from your DH, but tell him you're hiding it...just don't tell him where. *wink*

Also, it helps to have 401K's, stocks, and savings when you apply for a mortgage. Since we had a lot of money socked away, the bank felt more comfortable with a lower rate since they had more "collateral".

Congrats on getting out of debt!!

By Anonymous on Friday, December 7, 2007 - 06:51 pm:

Thanks for all of the advice.

I talked to a very grumpy DH today so our discussion started out with his "I want it MY way" attitude (not usual, he just had a very bad day at work) and he eventually started seeing eye to eye with me. I am going to keep the account active and use it for grocery store/gas purchases and put the money I would have used aside to pay off the card when I get the bill. (Or whatever we end up figuring out in the end.) He is not allowed to hold a card for now. I'm such a meanie, haha. We also plan on starting savings bonds and a 401K soon.

By Ginny~moderator on Friday, December 7, 2007 - 07:55 pm:

Good for you, Anon, for being able to convince your husband, and good for him for understanding your reasoning and agreeing.

I don't often recommend a particular business, but I found a wonderful way to start saving and keep saving, and you don't have to have a large "minimum balance". ING (www.ingdirect.com)is a mostly online bank, FDIC insured, well rated. Right now ING is paying about 4.2% for straight savings, with a minimum deposit of $25. You link it to your checking account, and can transfer money between ING and your checking account by phone or on line - it takes about 2 business days, usually. I like it because I could start small and put in just small amounts any time I have a bit of "extra" money, and because it does take a couple of days to transfer back to my checking account I'm not likely to use my savings for anything impulsive. The problem with most bank savings accounts is they require a minimum balance - sometimes as high as $1000 or more - or they charge you fees that eat up any interest you earn, and most banks don't pay anywhere near 4.2% on straight savings accounts.

Most financial advisers strongly recommend you have between 3 and 6 months living expenses in a liquid (that is, easy to get without penalties when you need it) account - and savings bonds are not "liquid". If it were me, I'd work first at building up that 3-6 month cushion AND putting money in the 401K before getting into less liquid savings like savings bonds or CDs. The 401K is very important - at 69, I'm really glad I have been socking money into mine for the past 20 years. It's not as much as I'd like, but a whole lot better than just relying on Social Security.

By Mrsheidi on Friday, December 7, 2007 - 09:40 pm:

Again, ditto Ginny. We're on a roll! ING has been VERY VERY user friendly. You can even choose to have a set amount drafted from your checking account automatically on a once a month/2 week/ or set dates that you choose, based on whenever you get paid. We've also earned quite a bit of money due to the high interest.
Same for the liquid resources...if you have a 3 month cushion, that's great. And, even if it's 25$ a month towards a 401K, the earlier you start, the better.

By Mlee on Friday, December 7, 2007 - 11:34 pm:

I admire your husband for listening to you and for being willing to change his mind about how to do things.

By Hol on Saturday, December 8, 2007 - 05:05 pm:

Ginny - Once again, thank you for your wisdom, and telling us about ING. I had seen it advertised but never knew what it was, and didn't know if it was on the up and up. Those are great rates! You can't get rates like that anywhere else without tying up your money. How can they pay that much? CD's are paying that around here.

By Ginny~moderator on Saturday, December 8, 2007 - 07:59 pm:

Hol, one of the ways they are able to pay higher interest is that they offer very few services (just savings, CDS, mortgages, and now a kind of checking/ATM card account with a lower interest rate) and don't have physical buildings to maintain and staff. I've been using ING since July 2004, when the interest rate was only 2.08%, but still much higher than banks offered on straight savings, and with no minimum. It was recommended to me by my middle son, who is a lawyer and works for a large investment company in NJ.

I must say, for all my father's advice over the years to "pay yourself first" and "save something every paycheck, even if it is only $5", I never took savings (other than IRA or 401K) seriously until a few years ago. But I had a bad experience with the mortgage company on my first house, so when we (my parents and I) bought my present house, I thought it worthwhile to pay an extra 1/4 point on the mortgage to NOT be required to pay money in escrow every month to the mortgage company for taxes and insurance. My previous mortgage company almost never paid the taxes within the discount period, which cost me money, and a couple of times paid the insurance late. So, for this house, I had to start putting money away every month towards the yearly tax and insurance payments.

I was really pleased to come across ING because of its higher interest payments for the money I put in my own personal "escrow". It became very easy to put a little more than 1/12 of the taxes and interest into ING each month after I paid my bills, so that some of that money stays there for me in addition to earning interest on what I have to pay out for taxes and insurance. And, because it is so easy to transfer money from ING to my checking account in a couple of days if I need it, I have gotten in the habit of keeping my "spare" money in ING. After I pay my bills, I calculate what I'll need for running expenses 'til the next paycheck, allow a bit extra "in case", and transfer the rest to ING. If I run into a real emergency I can use my credit card and transfer the money from ING to checking when it is time to pay the credit card company. But because the transfer does take a couple of days, I can't transfer money for an impulse.

This is more than you ever wanted to know about my financial management, but I have finally become so convinced of the importance of savings, and so pleased that ING makes it easy, that I want to share.

By Hol on Sunday, December 9, 2007 - 04:00 am:

Ginny - I appreciate it. My parents were big savers and ingrained it into me, but I'm not as good as I should be. There always seems to be another place to put the money. However, as you say, even small amounts add up.

I, too, have to pay my taxes and insurance since we no longer have a mortgage. Putting away 1/12th each month makes more sense than using all of my DH's military pension check in one month to pay it in the month that it is due. Also, as you say, it's a way to make the money a little harder to access for impulse reasons.

I can't wait until payday Friday to try it out. I see, too, where you can link it to more than one checking account. That's good for me, since we have two; one that my pay goes into and one that DH's pension and salary go into. Both checking accounts are joint. Can you make the ING accounts joint also?

By Ginny~moderator on Sunday, December 9, 2007 - 07:21 am:

I'm sure you can make them joint accounts. I don't know if you can link them with more than one checking account but given that the "transfer" page asks you which account you want to transfer to or from, that may be possible. It's certainly worth asking them.

Yes, if you can do it, it is much better to put away 1/12 every month for known annual expenses. And maybe add $10 - $25, just for the heck of it, and knowing that taxes and insurance premiums do tend to go up almost every year.

By Ginny~moderator on Sunday, December 9, 2007 - 07:22 am:

Oh, and Hol, you can have more than one ING account - one for you, one for dh, and I'm sure one joint - and each will carry the full amount of FDIC insurance.