How long to rebuild credit?

[scottmandue]

I was chatting with my business owner friend over beer and hot wings last night.

He (and my wife) are surprised that my (our) credit rating is in the toilet.

Why is that do you ask?

My (our) house appraised for $350K so I refied to $220K, paid off all our credit card debt ($30K), closed out two credit card accounts and we are starting off the new year fresh. Our only debt is the mortgage, the car payment (I think around $8K) and $3K owed on a USAA credit line that snuck under the radar when we were paying everything off. Mortgage, car, and USAA are all on autopay.

Well, it appears the credit gods do not like it when you cut them off and stop paying their extortion payments.

Not that we need or want new credit but how long do you think it will take for us to bounce back credit wise?

[RANDY P]

FICO dropped? You just ended your trades (closed your accounts)

Your credit isn't bad. It's only bad when you stop making payments......

[VincentVega]

Dont close accounts, just let them sit idle. Plan to have a lot of available credit, but use as little as possible.

[RANDY P]

Credit is only useful if you intend on borrowing..... it's like hair- it grows back.

[sammyg2]

Yep, I've been told that if you keep the accounts open but maintain zero balance your score stays higher.

[john70t]

And credit-reporting methodology is not publicly disclosed or available because........WHY?

[tharbert]

According to Wiki, the formula is indeed secret but they have put out this much info:

35%: Payment history—Late payments on bills, such as a mortgage, credit card or automobile loan, will cause a FICO score to drop. Bills paid on time will improve a FICO score.

30%: Credit utilization (I'd bet here's where scottmandue got zinged)—The ratio of current revolving debt (such as credit card balances) to the total available revolving credit or credit limit. FICO scores can be improved by paying off debt and lowering the credit utilization ratio. Alternatively, applications for and receiving the credit limit increase will also drive down the utilization ratio. Alternatively, opening new lines of credit will have the same effect. The closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on a FICO score; if it is an old account being closed, the resultant decrease in average age of open accounts will also cause a decrease in score.

15%: Length of credit history—As a credit history ages it can have a positive impact on its FICO score.

10%: Types of credit used (installment, revolving, consumer finance, mortgage)—Consumers can benefit by having a history of managing different types of credit.

10%: Recent searches for credit

So, basically, you could open a couple accounts in place of the ones you closed to reduce your ratio. You'll get zinged for applying but I'd bet that falls off pretty quick.

[john70t]

(just speaking for the sake of argument)
1). Almost every known business has to have open policy/disclosure/etc for non-discriminatory and other reasons. They can't just pick and choose who gets what, but these reporting institutions are apparently exempt from that.

2). In expansion of this, the USD is backed and protected by the U.S. government by laws. It is a public function of exchange, and subject to open government.
No?
If it is private (as are the Central Bankers), then everyone should be able to print their own USDs.

3). There are flaws.
-The system uses 10% for credit application, so if a group of businesses(or one) run credit apps on an individual they can negatively affect a person's financial record. This makes it very easy for outside businesses to economically slander a person, which would affect insurance rates, etc, etc...

-So merely applying for something makes it harder to get? That doesn't make sense. What kind of mental game is being played?

-Having many existing revolving accounts should be cause for concern. But it is not. The potential for the customer(individual or exempt business members) to over-borrow and over-spend is encouraged by this system. The structure is geared to encourage debt.

[scottmandue]

Yeah the system sucks...

Technicly still have the car loan, the USAA account is a credit card that is still open...

And my main checking account has a master-card credit line (overdraugh protection) attached to it that was paid off but still exists.

I just figured we didn't NEED four credit lines open and the temptation of those two extra lines hanging out there.

[Porsche-O-Phile]

2-3 years and you'll be fine for most things.

[HardDrive]

Like others have said, if it cost you nothing, or next to nothing, its worth keeping credit lines open and unused. It gives the appearance of being under leveraged.

[scottmandue]

Problem is we want to restructure our accounts...

After doing a bunch of research we have agreed the best plan is to have three accounts, one main account where we dump all our monies and all shared expenses (mortgage, utilities, groceries, etc.) and his/hers private accounts (so we have a little privacy) where we will divert a budgeted amount.

Right now the mortgage auto pay and my paycheck auto deposit into my Citibank checking (with the Mastercard credit line attached).

That would make sense to have as the joint account... however with the credit line attached and our new low credit score they are balking at adding my wifes name to that account.

Could move mortgage and paycheck deposit to a (new) credit union or USAA account (not a big fan of Citi, just have been there for a decade and three changes in bank names)

But there there is the cluster**** of doing all that paperwork and with our low score will they let us open new account(s)?

[Groesbeck Hurricane]

Talk with USAA and the local Credit Union. I bet you will be pleasantly surprised. If you have an adequate income you will also be able to easily get a credit card from those institutions. If you do not have alot of land attached to your house you could potentially refi to USAA and just get rid of citi all together. Win/Win/Win for you??? Yep, not a big fan of citi either...


Sorry, I forgot, it was almost three years after cancelling about four credit cards before my credit rating moved back up. I never used them and saw no reason to pay monthly fees. Oh, I also paid off a house in this time frame which did not hurt.

[afterburn 549]

From the TOP
Dont be a whore to your FICO score
its better if you can live with out it............it will cost you LOTS less !

[widebody911]

Originally Posted by afterburn 549

From the TOP
Dont be a whore to your FICO score
its better if you can live with out it............it will cost you LOTS less !

This.

[RANDY P]

Ever wonder if Bill Gates or Warren Buffett worry about their FICO's?

[Scott R]

Originally Posted by RANDY P

Ever wonder if Bill Gates or Warren Buffett worry about their FICO's?

Reminds me of when I worked for Cadillac, pro football player comes in to buy a new caddy. Guy probably has a million a year in income but he can't finance a car, no matter he pays cash instead.

[Dantilla]

I have a great credit score, but my goal is to drop it to zero once I never have to borrow money again, for anything.

A couple mortgages to go, then, bye bye credit.

[ckelly78z]

What really sucks is when you would think that paying off and closing out old credit card accounts would be a good thing, it's not. If you have 10 open accounts with $2000 limit on each account that you are only carrying $1000 balence on half the cards, you are using 25% of the available amount and probably have a good credit rating. Now if you close the 5 accounts that aren't active, you all of a sudden are using 50% of the available limit which is not good in the eyes of a credit reporting agency.

[A930Rocket]

I made the mistake of thinking available credit was bad and closed 4-6 accounts years ago. Well, the credit is hood, but that was stupid on my part.