Bad things happen unnecessarily. This four ton boulder obeyed the law of gravity just a little sooner than the construction crew intended, as it was being hoisted by crane into the back yard of the home.
A little better planning would have avoided a very negative consequence.
It's the same with your credit score. As predictably as the law of gravity brought this rock to earth, your credit score will plunge if you cut the line that's holding it skyward.
A major strand in that line is a little thing called credit history.
Here's how it works, (and you need to teach this to your kids.) The scoring model created by the credit bureaus relies on history--what you did last month, and the month before--to determine the likelihood that you'll repay your debt on time.
What you've always done is what you're likely to do again. So the model rewards you with a higher score for maintaining those credit cards you've held, and used, for a long time. If you're in my generation, your first card was likely one from Sears, Roebuck & Co. You've had it for years, and have never been late.
Say that you're solicited by Capital One to transfer the balance. "Zero Interest! Move your high interest balance to us!" Seduced by the advertisement, you "trade in" your Sears debt (high interest) for Capital One debt (zero interest.) Financially, you made a good move. Your credit is impeccable already, and now you're saving money.
Bad decision. I tell my clients that this is like trading a valuable long term relationship for a one night stand. It's never good, and there will be negative consequences.
15% of your credit score is based on long term credit history. If your score is 720, you just lost a potential 110 points, because the system relies on Sears to report that you paid on time every month for years. Suddenly that data is erased, replaced with Capital One's report that you paid on time last month. Your score can drop like that rock in the photo, with similar consequences to your credit "home."
Hang on to those older cards. Use them once in awhile to keep them active. (Just having the card won't necessarily help your score.)
Today's Assignment, from your favorite Tucson, Arizona mortgage lender: Dig out that card, and buy a pair of shoes, or a new driver for your golf game. Tell your spouse that Mike in Tucson said it's not only okay--it's necessary!
I'm Mike in Tucson, your preferred Tucson, Arizona mortgage lender
photo courtesy of Friday Fun
Content copyright Michael W Jones, Tucson, AZ
