Should I close out accounts?

KathsgrdnMarch 15, 2007

I want to buy a new car or newer car in a year or two. Want to give my old one to my son, who will be driving by then. How do I get the best credit score? Do I close out all paid off accounts or keep them open? I've heard both. Too many revolving accounts left open can hurt your credit score, not enough can hurt it too. Should I keep some open and close part of them?

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pamghatten

Here's an article about improving credit scores ...

Close a few if you want to, but as it says here they still stay on your credit profile and are used in the scoring process.

Here is a link that might be useful: Improving Credit Scores

    Bookmark   March 15, 2007 at 3:21PM
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myfask

You want to make sure that you don't have more than 50% of your availble credit limits tied up in balances.
The nice thing is you have time
If you haven't this year, get your credit report and the score so you will know where you stand. Having a year or 2 before you buy will give you a chance to address any issues.

    Bookmark   March 15, 2007 at 3:23PM
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Chemocurl zn5b/6a Indiana

I have many (would have to check for sure) revolving credit (that's credit cards...right?) accounts open. All except 2 have zero balances (which are paid) off each month.

Unused 'old' credit is a good thing the way I see it, and as myfask pointed out, closing some could give a less than desirable credit owed/credit available proportion.

Having no debt, I was so pleasantly surprised when I got my score...seems my mix of things was, hmmmm...near perfect.

Sue

    Bookmark   March 15, 2007 at 7:59PM
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dave_donhoff

Sue is right....
Open lines are GOOD for your scores.
MOST valueable is TIME... the older the open lines, the better.
NEXT most valuable is SIZE... the more unused credit on individual accounts, the better (iow... one empty $10,000 Visa card is better than 10 $1,000 cards.)

Of course... toss all that aside when you're late on payments. Nothing's a bigger buzzkill to credit than derogatory treatment.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

    Bookmark   March 16, 2007 at 12:43PM
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Kathsgrdn

thanks everyone.

    Bookmark   March 16, 2007 at 1:31PM
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joyfulguy

kathsgarden,

Would it be useful to make a deal with your son, that he owes you a given amount for the car, with a given amount to pay monthly?

That gives him an idea of how the real world works for adults, which he's getting to be - one doesn't get things free.

Does he have a part-time job? Then he should expect to start paying for stuff that he gets: stuff that comes free isn't respected nearly as highly. It would be nice if he could keep all of such employment income - but in future, some of it will need to go for education, food, housing, auto (purchase plus repair), insurance, etc. The sooner that he learns of that reality, the better.

If he hasn't income to be able to afford it, would it be relevant for him to get a part-time job, in order to pay at least part of it? And you forgive part? Even if the job were in the summer only.

A safety factor: it seems to me easier for young fellows to be more easy-going about driving less carefully if they received the car at "no cost" ...

... than if there are XXX hours of being sure to get his tail our of bed, to get to work on time, and sweat and toil, involved with the ownership.

You could use the income to help pay for the costs related to your next car purchase ...

... or you could put it into a bank account, for a while, then invest it carefully when a reasonable sized amount has been gathered.

Maybe have the account in joint names, so that he knows that it's to be his, and the investment, as well. Or, just in his name, with the understanding that he's not to blow it for frivolous purpose.

There's an advantage here, as well.

When this car dies, and he needs to get a replacement ... if he has a few thousand dollars' worth of mutual fund or stock certificate to use as part of the collateral for his loan, along with the car, I'll bet that he'll get a much lower rate of interest cost on the loan.

As for your future car ...

... if you want a new or fancy one, for purposes mainly of image ...

... there's a price.

A vehicle is part of one's capital, one's assets, yes - but it's a poor investment: costly, but it crumbles to dust in 15 years (or less, for most folks). And, if you don't keep it for the full amount of its life, there are friction costs associated with trading (especially if one does it through dealerships).

How about putting out the word among friends soon, saying that you'll be looking for a car, soon? Preferably one bought new by a senior who trades every three or four years, drives few and gentle miles mostly on Sunday afternoons?

Do you know some mechanics, who'd be willing to check cars that you were considering?

Have you read my Christmas gift offered here for several years (yes, I admit, the same one, retreaded)?

I figure that it should save folks hundreds, more likely thousands, during their lifetime. See it a few pages down on "Money Saving Tips" - or I could send you a copy, if you ask.

How about going into heavy-duty savings mode from now till the purchase of the replacement car (at least), in order to pay cash for the next car?

If so, here's an idea.

When you save some money that you'd have spent before, put that amount into an empty coffee can. Actually - better if it's a bottle, so that you can see the accumulating asset. Label it, "Kontemplating a Kar for Kash" - or something with a bit of a humorous twist, to ease the pain. And keep it in a corner of the kitchen, beside the bed, (by the lavatory in the bathroom, visible from the seat??) so that you get the message several times daily.

You're paying yourself for the privilege of auto ownership, rather than someone else.

After purchase, figure out how much you'd have borrowed to buy it and add the cost of the interest to the bottle monthly.

Such is my suggestion - and I've been a shareholder in a bank for 40 years ... which makes auto loans, as far as I know ... and it's profitable, by the way. A share cost slightly over $4.00 then, now saleable for just over $100. (lower tax rate on capital gain) ... and has paid about 3% dividend through those 40 years - tax advantaged, as well. In fact - if I had only that kind of income in 2005, I'd have no tax to pay till over about $25,000. - 30,000. ... and it increased to between $40,000. - 50,000. in 2006! (Don't expect a similar increase anytime soon!)

Canada's best personal money management magazine carried a story last year about a guy who retired at 34.

Have a great weekend.

ole joyful

    Bookmark   March 16, 2007 at 10:17PM
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missymar

No, No, No!!! Get those balances to 30% or less & keep them open! The LONGER you hold a line of credit in good standing, the better your scores....

    Bookmark   March 23, 2007 at 8:57PM
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