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
Frank, thanks for commenting. It really doesn't matter which card or cards you use, so long as they report "paid as agreed" to the bureaus. What's important is the history; once you've established a long term relationship, maintain it. It's just as valuable in credit as it is in love.
Mike in Tucson
It's a good thing no one was sitting in that recliner. What a headace they would have.
Good points about credit scoring. Old advice said to close unused accounts. Today's scoring weighs heavily on history as you point out.
Matthew, thank you! I'm one of your subscribers, and I appreciate your comment.
Julie, a lot of loan officers do what they learned, and give advice based on that. We all need to be life students, especially in our careers. Thanks for visiting and commenting.
Dan, the cat was asleep on the arm of the recliner. JUST KIDDING! I love cats; we have bobcats and mountain lions right here in my backyard--in the Tucson Mountains.
Mike in Tucson
Mike,
I have a bank card from 1978.
It's a keeper, and quite active.
Thinking of calling it a family heirloom.
Mike
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.
Really? What a hysterical way to talk about credit scoring....there is no doubt I will use this one in one of my presentations....I will be sure to give you credit! LOL!
Mike, I hope you are doing seminars for first-time homebuyers in your market area. A lot of would-be homebuyers need "counselling" on credit matters before attempting to buy a home.
Bill Roberts
There are other factors that people don't understand either. If you have 3 or 4 cards but only one has a balance, transfer some of that balance onto another card. I don't know why but if you do this, your score increases.
The rule of thumb on credit cards is, if you are applying for a loan, make sure prior to applying that you don't have any one card above 48% of your available credit. This is a killer. Distributing your balances to several cards is better than having just one card that is higher than 48%.
The process takes about 3 months to settle into the higher score but is well worth it. Especially if you have a challenged score to begin with.
Mike~ I knew it was important to keep the old cards open, I didn't know you were supposed to use them every once in a while. Thanks for pointing that out.
Man, I'm getting behind answering your comments. But here I am...
Mike J, love the family heirloom from 1978. Thanks for commenting!
Bill, you'll love the reaction when you use that line with your clients. It really breaks the ice.
Linda, it's always good to see you; thanks for visiting and commenting.
Bill, I'm not doing seminars, but probably should take your advice. Thanks for coming around to see me.
Judi, thanks for commenting. I love your last name; my brother John got tired of explaining that his name really was John Jones, and that his mom was Mary. He legally changed his last name to my Dad's first, and now he's John D. Morgan!
Roy, thanks for expanding on the theme. I find that comments are often just as useful as the post, and in my case, probably more so. Thanks for visiting and commenting.
Lisa, see? You really should go right out and buy a pair of shoes!
Mike in Tucson
Marlene, I've seen that sign! I saw two more in St. Louis, and bought them both. The first said "If Mama Ain't Happy, Ain't Nobody Happy." The second said "If Papa Ain't Happy, Who Cares?" LOL
Joan, it's not really so complicated. Like my little grand daughter said to her older cousin, "Grandpa 'splains things to me."
Mike in Tucson
Kate, you're absolutely right! I love saying that to another lender, especially to West Coast Kate! Thanks for the clarification, and for visiting and commenting.
Mike in Tucson
Thanks for commenting, Candy! Simplicity is the key to effective writing. Come back any time!
Mike in Tucson
Bill & Barbara Jo, it's something we should teach at the high school level, before our kids hit college and enter the credit world. Wouldn't that make a lot of sense?
Mike in Tucson
Russ, thanks for visiting and commenting. Given your business background in the business of credit rehabilitation, I'm especially pleased to have you comment.
For Loan Officers reading this, here's a link to Russ Higgens' website. Go see him; he'll help your business.
Mike in Tucson
Mike, Thanks for the kind words (and plug). If you don't mind, I'd like to make a post in my forum for this - giving you the credit for the idea, etc... Would that be ok with you? I'd just like to add another person's take on credit in the forum. It's a forum for people to come and ask questions about credit. I answer them free of charge. Just a way of helping to enlighten the public about credit.
Russ
Russ, have at it! I'd love to come visit and comment, if the format allows that.
Mike in Tucson
Mike, absolutely! The forum needs som life, anyway! All ya have to do is register. I'll look forward to your messages in there. The forum is here
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!
Hey Mike,
That's one of the best reasons I've ever heard for a new driver! I can't reveal all of the details, but I think I left my last one wrapped around a tree. :)
NYL,
It's good to see you, and on a post from a year ago! I'll look forward to a mea culpa post on your blog about how that driver came to be wrapped around the tree! I'm thinking it wasn't a Christmas tree. LOL
Mike in Tucson
Mike.... Great blog and you made alot of great points! Would it be okay to reblog this on our personal blog? Wishing you all the best on this Holiday season.
Cheron Lange
Cheron,
Reblog anywhere. Thanks for commenting.
Mike in Tucson