small change toward a rich life

Credit cards (part two): use ’em or lose ’em

As I mentioned in part one, for the last two years Jak and I have been using a single credit-card account, a Costco Amex card with cash-back rewards, for all our credit-card needs. (When a merchant doesn’t take American Express, we use the debit MasterCard for our joint checking account.)

This makes record-keeping easy. At the nadir of our debt we had nine or ten cards between us, which makes for a lot of due dates to track every month. As you might expect, we missed several deadlines over the years.

Now I only have to monitor the balances of two accounts, and worry about one monthly due date. We pay the full balance on the Amex card every month, so never incur fees or interest charges.

I’m very happy with this system. Except for one thing: it’s trashed my credit score.

I confess that once I’d paid everything off I stopped even tracking how many lines of credit I had open. I used to know them by bank, so there would be the Providian card, the First USA card, the Citibank card, etc. But those darned banks keep eating other banks, and the names wouldn’t stay the same. We started out with one Chase account each; four years later we had six (or maybe seven?) different Chase cards, which I could no longer tell apart. J.P. Borgan Chase!

To make matters worse, I’ve never been very happy with Chase, after a couple of predatory ‘gotcha!’ stunts like moving our due date up by a week without warning. I had no intention of using any of those cards ever again, but I left them alone because I knew that closing lines of credit can drop your credit score.

Then in the spring of this year Jak and I began to receive notices that one card or another had been closed due to inactivity. At first it was a surprise; in nearly twenty years I’ve never before had a bank close an account because I wasn’t using it. Previously they’ve just tried to woo me back by sending more ‘convenience checks’ and offering temporary low interest rates. The Wall Street Journal explains this shift in strategy: “As credit-card delinquencies rise, closing inactive accounts helps companies reduce their exposure to risky credit holders. Issuers close credit lines … if the card holder is deemed unprofitable, which is essentially the case when the card goes unused.”

I hated the idea of juggling purchases across multiple cards again, and decided not to change my behavior in hopes of stopping any other closures. It was a partially emotional decision rather than a strictly logical one, but for me the potential score drop wasn’t worth the effort and increased risk of screwing up.

When I got the termination letter from Discover, however, I had a sharp pang of regret. That was the first credit card I got in college; when it closed my ‘credit history length’ dropped from 19 years to just 2. I don’t have clear before-and-after credit scores, but since history length accounts for roughly 15% of your score, I figure that had to hurt.

I called Discover to find out if the account could be reopened. No dice; I was offered a new account, but of course that would do nothing for my ‘length of credit history’ number. They wouldn’t budge on reopening the one I’d had for nearly two decades.

This week I pulled credit reports and took stock. Jak still has three Borgified Chase accounts active (my guess is that Chase realizes that he’s still employed full-time and I’m not); I have just the one Amex card open.

Honestly, I prefer it this way. Despite my brief worry that I’d done the wrong thing by not saving the Discover account, I feel relieved to be done with all the extra cards. I have a sense of freedom and control that was missing before.

Still, it was not without cost. If we ever apply for another mortgage, the credit score will matter. It might even be making a difference right now in our car insurance rates, or in job applications.

If you’re concerned about having the highest possible credit score, you should pick the one or two cards that you’ve had the longest and make sure to put a purchase on them every few months. There’s no guarantee that they won’t be closed anyway — issuers can close an account at any time for any reason — but it improves your odds.

The bad news is that making purchases on your credit cards carries a whole other set of risks — sort of a ‘damned if you do, damned if you don’t’ scenario. I’ll cover those in part three.

(Photos by Andres Rueda and jessemoya.)


4 responses

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  1. dorothy says

    This is an interesting story, in part because it’s very different from my experience. I have always switched out my credit cards (okay, all two of them) every few years when I moved and changed credit unions. As a result I have about 20 accounts on my credit report, only two of which are open. But because my credit union offers free disclosure of our FICO scores every quarter, I know that my credit score has been increasing slightly over time, from 790 to 823 over the last year, despite the fact that my oldest card has a history of only two years. I wonder why it’s so different for you.

  2. Rob says

    After four years in a debt reduction program, I will be debt free in September. I’m a little scared to see what my credit score will be because I will have closed down every credit card I’ve ever had. I do plan to re-open one at some point for the benefits you’ve outlined above, but it will have no history at all. And then there’s the whole question of what having been in debt reduction in general will have done to it.

  3. steve weaver says

    I’m in the opposite position as everyone else here seems to be, i.e. I never bothered getting credit until 3 1/2 years ago. Since I try to maintain a “No Whining” policy, I’ll briefly relate my Chase experiences. I started with a BoA card (Secured with $500) in Dec. 2005. Picked up 2 Wamu cards in 2006 and a Chase card Jan. 2007. I paid off over 4k in personal loans during that time,but had managed to keep my CC debt to under 1500. Made the mistake of trusting a car salesman and wound up owing over 18k at 14.75% in May 2007.(OUCH is right!) Due to the nature of my job, my income is irregular. I see weeks when I bring home 1500 and others I get zero. My annual income averages about 27k from all sources. This means some months I use lots of credit. Others I pay large chunks of the balance down. I’ve never failed to make the minimum payment, been late or exceeded my limit.
    After Chase bought Washington Mutual this year, I admit to expecting some changes. Luckily I had 2 good months and was able to pay off both Wamu cards. Sure enough, Chased raised the rate…on my original Chase card, from 9.99% to Prime rate PLUS 9.99%. They were oh so helpful. Their representative shifted my limits around so that the card with the lowest rate suddenly had a much higher limit. Too bad I had just purchased a new computer so had to keep a big chunk of it on the original card. The rep. also promised me that Chase had no intention of doing anything with my other cards. (Note: later another rep. told me that they had no way of knowing that and the other person I had spoken with had “inadvertently misinformed me”. You and I would probably refer to that as a LIED TO ME!!)
    To speed this up, I’ll just say that I later received notice that my card with the “new, higher limit” was also being raised from 10.99% to prime plus 9.99%. When I asked about getting someone to look into my situation as an individual I was told, “This is a company policy, the bank doesn’t make allowances or consider individual requests”.
    Thankfully my reputation for integrity allowed me to borrow 6k to pay off the cards on a “Pay what you can, when you can” agreement… no interest! I paid them off and proceeded to point out to them (Via the secured message center on their website), not only how much it cost Chase in projected interest just on my credit card accounts, but also any other interests they may have made off the home mortgage I’m trying to get now. We corresponded a few times and each time I was told, “We apologize for not meeting your expectations but the fine print in your cardholder agreement warned you that we could do this.” To add insult to injury, immediately following this exchange, I received notice that the last card I had with them, (The limit on it was only 500 because it started and stayed at 13.99%) was being raised from said 13.99% to Prime rate PLUS 16.99%!!!
    I owe Chase nothing and will only use the cards enough to keep them open and active since I have such a short credit history. The crazy thing about all this is that because I suddenly dropped my credit card debt from 7k to 1000 dollars (5k was on Chase cards!) my credit score jumped from 708 to 746 in a month! To be fair, I was informed I could close those accounts and that would freeze the use of and interest rates on those accounts.
    The reasons I bothered to relate all this are these: A)The new credit card rules do NOT take affect until next year, so the banks can do whatever they please with existing accounts (You’ve been warned!) B)To make others aware of how Chase has treated what most banks would consider a “good customer”. (Hopefully the word will spread and it will cost Chase a lot more than just MY business!) & C)So your readers might take a moment to consider how policies like this one will effect the working poor who can NOT just pay off Chase like I did.
    Personally, this seems to me like this bank, (and probably others) are using the current economic mess to further penalize the working poor, the people who can least afford it!! Ask yourself this: How many people, who are already barely getting by, will this force into bankruptcy?
    I can’t help but wonder if this may not be just another way to extend the recession, thereby justifying all the money banks received from the taxpayers? Your thoughts?

  4. Karawynn says

    dorothy: I envy your credit union FICO score deal! I’ve looked for one where I live but no dice. Your report does give me some hope that a high score is possible with short histories.

    Rob: Congrats on debt freedom! <high-five> The debt-reduction program shouldn’t have an effect on your score, though of course closing the cards probably will. Still, in the long run I have to hope that doing smart responsible things will win out over trying to dance to the obscure FICO score tune.

    steve: yes, Chase (and other banks too) have been pulling a lot of really low tricks. I’ll go into that a bit more in part four. You might be interested in the web site http://www.changeinterms.com/ … it’s run by a guy fighting against the ‘unscrupulous business practices’ of Chase in particular.

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