pocketmint

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.)

Put that money where it belongs, dammit

Here’s yet another reason why checking online account information regularly is a good idea:

My regular monthly electronic payment on our second mortgage went out to Bank of America on June 3. On June 4 I manually sent an extra $2000 against the principal.

On June 7 I checked our mortgage accounts online. Turns out that they split the $2000 and used part to make July’s payment a whole month early, leaving only about $1240 toward principal.

Grrrr. Sneaky bastards.

I was able to call this morning and get this corrected with minimal hassle. However, if I hadn’t checked the allocations, they would have just applied July’s payment against August, and so on, and we’d never have gotten the interest reduction from prepayment.

That $750 paid against principal today saves us over $6100 in interest over the life of the loan (2.5 years into a 30-year amortization). Of course the bank would rather have that $6K in interest and a month’s cushion against late payment, but I’m not going to give it to them.

Back in the saddle

Well, here we are, seven months after I lost my job, more than six months since my last update.

My profession and field — and perhaps also, temperament — is such that employment cycles are inevitable. Full-time job to unemployment to freelance to full-time job and around again. Dot-com boom, dot-com bust, economy surge or crash-and-burn, company buyout, change in management … every two or three years something alters my situation, often dramatically.

Perhaps unsurprisingly, I’ve always found it easy to deal with bills and other financial matters during the periods of steady paychecks. More than easy — satisfying, even almost ‘fun’.  But when income is sparse or erratic (or nonexistent), it becomes teeth-grittingly difficult, and my tendency is to avoid the subject as much as possible. (This is one aspect of the clinical depression I’ve been battling my entire life.)

In previous low-income periods my avoidant tendencies have caused me big financial trouble. Instead of checking in on the bank account every few days to make sure all was in order, I’d go weeks, sometimes a month or two. Instead of paying the bills as they come in, I’d stack them up to deal with later — where ‘later’ was ‘the last possible minute or maybe a bit after’. Often I’d miss due dates because I simply wouldn’t think about bill paying for weeks at a time. Late fees would rack up and interest rates would soar. Since at the time I was carrying credit card balances — sometimes living entirely on credit for months at a time — the effects were devastating.

I still experience that avoidant tendency as much as ever, but this time around I’m happy to say I’ve kept the effects to a minimum. At one point this winter I got too disorganized and was late on a couple of utility bills, which cost $5 each in late fees. But I’ve stayed on top of everything else: mortgage payments, credit card bill, bank account balances, tax filing.

What did suffer was the detailed expense-tracking that I’d been doing via Wesabe … and Pocketmint. I haven’t touched either of them in half a year. I felt guilty for abandoning the blog, but I had to triage something, and ‘number of personal finance blog posts’ doesn’t show up on my credit report.

I’ve been working my way back to posting again for the last month or two, and here I am at last. Next I’ll update on our financial situation over the last half-year, and where we stand today.

(Photo by Baron55.)