As I am sure anyone in the credit card business is aware, card companies are making a mad rush these days to cancel card accounts for various reasons due to the new legislation coming out of Washington. One reason they are canceling is if a card has not been used recently. I had 3 cards, each for many years. I stopped using two of them a year or two ago and only use one. In the past few months I was contacted by both of the cards I don't use. One of them said that they will cancel if I don't use it soon. I contacted them and asked them to cancel it now. They did. The other card simply sent me a notice that the card was canceled do to lack of use with no warning. *Neither card had any balance when canceled.* In all the decades I have had cards, I was never once late with a payment on any of these cards. Actually, I was what they call a "deadbeat" in the industry because I made every single month's payment on time, paid the full balance due and never paid a penny in finance fees. The only balance on the card I kept is current balance, not yet due. I have heard that when they cancel my cards like this, it adversely affects my credit score (WTF!). I've known that for a while, even before they canceled my cards. As a matter of fact, that is why I didn't cancel them myself earlier. I've even heard that when you cancel a card (or they do) it is treated as a DEFAULT! WHAT?!!! Here are my questions for someone in the business who knows: 1. In my case, will these cancellations really affect my credit score? 2. How badly will they affect it? 3. Does it have the same effect when I canceled the one card myself and they canceled the other one? Does it matter who canceled? 4. WTF! Thanks for the help!
It will negatively affect your credit score because your credit utilization ratio (how much you're spending each month of your total available credit) will worsen. This counts for about 30% of your FICO score, so if you had 2 or 3 cards canceled and your CU ratio all of a sudden increased to 50% or something, it could significantly hurt your credit score. I wouldn't want to make a guess at exactly how many points, because there are just too many variables in the equation. That said, 30% is a big chunk of your score though, so it's not to be taken lightly. From a lender's perspective, they would much rather see that you closed the account instead of the credit issuer. It just looks better on the credit report when it says you requested the closure and the balance was paid in full. But, either way, it will have the same effect on your FICO score.
Thanks for that. It was helpful. Unfortunately, I had no opportunity to cancel one of the cards myself as they gave me no notice. If they had warned me I would have canceled it myself like I did with the other card. But how silly that is. I am actually a better credit risk now than I was before the cards were canceled. My personal financials are better than they ever were. Doesn't matter much to me frankly, because I am a high net worth individual and I pay for everything in cash. I've never taken a loan in my life and don't ever plan to. But nonetheless, I am put off by the obvious problems with the FICO formula. I can imagine that millions of cards are being canceled now like mine was, even when there was no change at all in the card holders creditworthiness. Their FICO's are being trashed for no good reason. Maybe this will become a political issue.
If you care, you can still call or write the credit issuer that closed your account without notice and request that they report it as closed by you. It does work, I've done it myself. Credit has nothing to do with income or net worth. Of course, lenders will look at those factors as well when determining an applicant's credit risk. But attaining a good credit score does require a nice history and mix of credit. And yes, like anything else, FICO isn't perfect. Paying for everything in cash is fine, but don't ignore the benefits that come along with using a card as well. Purchase protection, an easy way to track all your expenses, rewards programs, and the ability to chargeback. That's why I use credit cards. Other "good" debt can also be leveraged as a way to increase net worth in the long run.
Thanks again. You clearly know what you are talking about. And I appreciate your suggestion about contacting the card that canceled and asking them if they can change the record to show that I canceled it. I'll try that! I agree with your other statements. I do use my credit card extensively. When I said I always pay cash, I didn't mean currency. I consider using my card and paying it off in full each cycle "paying cash." I get a free loan for the outstanding balance plus the convenience, plus a discount, plus other benefits. Can't beat that. I've been doing that for decades. Why do I have this feeling that is going to change under the Obamanomic reforms? I just had no reason to have 3 cards. My credit limit is high enough on one card to accommodate me during most cycles, I like this card, so what's the point in keeping the other ones. That was the only reason I let them go.
The only problem with only having one card is that if anything happens (it gets stolen, you're on travel and forgot to tell the credit card company and they refuse your card) you don't have a fall back. If you can convince one of the others to reopen your account, then use it for a small item or two every month, it will help your score and give you some backup in case anything happens.
The only problem? How about the outrageously high price you pay in terms of interest that most people have to pay on their credit cards? Seems to me that while credit cards are a great convenience from time to time they are simply too expensive for all but the wealthy to afford. In today's economy and the ever increasing jobless rate credit cards are a terrible risk to take on because if you lose your job through no fault of your own then you are in deep trouble indeed. The credit score you worked so hard to develop goes down the tubes and you will probably end up getting sued in the process. Yes, I have them too but I don't owe anything on them and with the current economic situation I'm hardly using them at all. Right now, I think credit cards are a terrible bet for consumers but like everything else, time will undoubtedly change that either for the better or for the worse.
If you use a "no annual fee" credit card correctly, you will never pay any interest charges or fees. And you don't have to be wealthy to use a credit card - just smart enough to take the time to understand how they work. If you're living within your means (the #1 rule in personal finance), credit cards are a convenient way to keep track of expenses, enjoy rewards and protections you otherwise wouldn't get when paying with cash, and build a solid credit history along the way.
There is that great big word again. If . If If you qualify for such a card you might get one. If If you had the good credit to get such a card or any card for that matter you wouldn't be here trying to learn how to fix your credit or how to defeat a judgment now would you? If you or some member of your immediate family never has any serious injuries or health problems you can't pay for and don't have the insurance to cover it you might be able to earn enough money to live within your means. If you can keep your spouse from being a spendthrift and running up bills or starting some silly internet business that don't have a chance of making a dime but ends up costing thousands of dollars they don't have and run up thousands of dollars they can't pay for without telling you then you might be living within your means. If your company don't downsize or go bankrupt or move to some foreign country or simply hand you your pink slip for whatever reason then you might be able to live within your means. You might have a degree or two in finance or whatever degree(s) you have but apparently you haven't learned about that great big If yet but it is always there, always waiting to happen. It isn't a question of whether or not it is going to happen but rather only a question of when it will happen. I've held some highly paid positions and even so, there have been tough times. Times when I couldn't meet my obligations. That's when I learned that there is no sure thing in life. No matter how valuable you might be to somebody else there can come a time when they slam the doors shut on you. I was a project engineer on a major defense contract. I had it made. A great salary and working for a major company who would never go out of business. They didn't but they closed the plant one day and everybody was out of work including me. Yes, I got a few bucks severance pay. It didn't last long enough to find other work so I decided that my days of working for somebody else were over for good. I never went back to work for anybody after that and I've done far better ever since. One of the best things that ever happened to me. One thing I learned a long time ago is that If somebody gives you some great piece of advice and it has any of those If things in it the advice might not be worth a hoot. LOL
Living within your means is a tough one to figure out, these days. It's no longer as simple as just putting something away for a rainy day and not spending any more than you have left over (after putting away your savings). Even if you can ignore all the consumerism and enticements (which puts you in the distinct and certainly quite boring minority), live frugally and save and invest wisely, many people would still be only one hospital visit, one layoff or furlough, or one car accident away from homelessness. And that doesn't even include the more likely event of divorce, if you happen to be or get married. As CapOneSucks points out, today's hot career can be tomorrow's ticket to the breadline. "Job 'til retirement" is a thing of the past (if it even existed back then). So, does living frugally include saving for your retraining when you find out that your job has been outsourced to a foreign country? I used to think I'd be safe in the software industry (I mean, in the 90's you could no wrong). Now, much of the industry is being outsourced and offshored. I'm paddling hard to keep up with the changing tides (and I'd say I'm fortunate). Many people don't have the ability or the luxury of being able to change careers half-way through their working life (which is getting longer and longer). So, I'd be interested to know what, exactly, "living within your means" translates to, here in the 21st century.
Yes Cap1, there are certainly lots of "Ifs" in life and bad things happen to good people - I unfortunately learned that the hard way at a very young age. That doesn't mean anything I said about the benefits of using credit cards is wrong. cbob - I wish there was an easy answer to your question. I don't think there is any universally accepted definition of "living within your means". It's a very personal thing. In fact, I choose to use the phrase "provident living" instead for myself. None of us are ever protected from something that could destroy us financially; however, living a provident life can help us prepare for the worst. What does the phrase mean to you? Thanks for both of your insights!
I don't think the second phrase performs it's intended function any better than the first. We could also use the term common sense to the same end and still wouldn't be any better off. Another word falling in the same category is wisdom. We all know what those terms and many more such commonly used words and phrases in the English language mean. Or do we? What far too many of us have is a mental image of what we think a word or phrase means but have never actually looked them up to study their definitions. Those who profess to know the law also fall into the same trap. They read the law and think they understand it and how to apply it to their benefit and more often than not fall into error because they failed to read the most important section in the specific law which is the definitions section. Every law has it's definitions section(s) and are always one of the first statements written into any law. The definitions sections of some laws are lengthy and others are not. But if we don't read and understand the definitions section of the law we intend to use we don't know why the law was written or to whom or what that law applies nor how. Without having that perspective firmly entrenched we have no wisdom about the law. We hear someone spouting off their concepts about some law or other and we think that they must be very knowledgeable about the law and that their opinions and ideas are to be totally trusted and repeated universally so that we too seem knowledgeable about the law. But we have no wisdom when it comes to the usage or application of that law and the misconceptions grow and expand exponentially as the errors are repeated. What is even worse is the way in which our schools teach. An example of that is in the teaching of languages including English. I think there is a reason that is universally true. Every school I have ever been to where English or some other language is a requirement start off by teaching the mechanics of the language rather than the definitions of words. Babies start life learning their definitions first then over time the mechanics of the language. By the time they get to school it is assumed that they know the definitions of words well enough to understand what simple words and phrases mean but that isn't necessarily true. Often we get our definitions of words and phrases from the glances and gestures of others instead of by actual study of the dictionary or other reference works. We accept their meanings and usage as definitions and pretty soon we think we know what certain words or phrases mean but we don't have the wisdom to know that our current teacher really don't know what they are talking about or really saying at all. We trust them and are often led astray and into serious pitfalls or waste our time and energy following their advice because they have a laundry list of impressive qualifications and really seem to know what they are talking about when they don't have a clue. I know a man who is highly educated and respected, does a lot of writing about his specialty which is writing about and giving financial advice to others. Many of his writings contain references to his educational and professional background and qualifications. I checked out two of his recommendations yesterday and actually tried to avail myself of one of them which turned out to be a disaster and ended up with that company to which I was referred committing a serious violation of my rights and before it is all said and done with I just might file a federal lawsuit against them. They only have to make one more mistake in the series to complete a perfected cause of action against them in federal court. If I rushed to file now they could easily defend and I would probably lose even though my complaint is true and correct. There is a way they could weasel out of it and I'm quite certain they are well prepared to do so but if they fail to take the next step then I would have a perfected case they can't wiggle out of so easily. The second instance I followed turned out to be nothing but a time waster. That's the problem with those who loudly tout their supposed qualifications and expertise. The more they tout their qualifications and supposed expertise the greater the suspicion that they are little more than a fraud upon the public should be and the less their advice should be trusted. They may have a lot of education but far too often they have no real wisdom. I'll even give some real life examples. Suze Orman, Dave Ramsey, Dr. Laura Schlessinger and many more like them. Highly respected, highly touted but their advice is shallow and will often do more harm than good simply because they have no real wisdom.
I agree. We can't take the advice of others based on credentials alone. We must listen, do our homework, and always make our own decisions based on sound judgment. And that's perfectly fine if you don't like the phrase "provident living". That's why I said I choose to use it as a theme in my life - it works for me.
Who can argue with that? LOL I think what it boils down to is what we call wisdom. I tend to think that wisdom is a direct result of the human thought process. It really doesn't have all that much to do with I.Q. either because whether we happen to be born with a low I.Q. or a high one our I.Q. increases as we learn. The more we learn the higher our I.Q. becomes and the better we become equipped to learn even more. Of course, that does have it's limits but it works that way. Experience is also a learning process and as a famous person once said, if we don't study history we are doomed to relive it's mistakes. Personal experience is a form of history too. So if we don't learn from our mistakes we are doomed to relive them again and again. You said provident living? What is that but a product of experience, education and thought which should turn into wisdom? Provident living seems to me to be but a part of wisdom.
