Should I be bothered having 20 accounts?

Discussion in 'General Discussion | Credit Cards' started by michael21, Dec 2, 2012.  |  Print Topic

  1. michael21

    michael21 Silver Member

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    I just saw my credit report and I have like 18 or 19 open lines of credit. That being said before I opened all those I had a 738 score and just last week I got a new car-great rate and saw my score was 743. So granted it irked me to see such a ridiculous amount of credit cards but is it no harm no foul?
     
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  2. jbcarioca
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    jbcarioca Gold Member

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    Generally it is a good move to close a few of those that you do not use. In the event of identity theft it is not unusual to be hit on accounts that had been inactive for a long time.

    In my personal case I put accounts in suspension if I do not expect to use them for a ling time. Some CC issuers (Bank of America is one) will suspend accounts without closing them, so you need to reactivate if you want it again. That is becoming more common now taht banks are required to hold capital against all open and unused credit lines. Some other categories, like auto loans/leases, are poorly updated so soem will show long after they're closed.

    Overall, a dozen or so active open revolving accounts is optimal in many scoring models, with the highest scores associated with three or more years open and used with no delinquency reported. Above that level scores typically begin to decline slightly, but by modest amounts unless you have several new accounts. With some issuers new cards added for a cardholder sometimes are reported with the original date of their oldest open account, thus having minimal affect on credit scores.

    Generic scores >750 usually get the best terms for credit cards and mortgages, but new car rates usually are at their best somewhat lower, with the "how low can you go" question depending on whether the car is 1) financed via a captive finance company, a credit union or an independent and 2) how eager the manufacturer is to unload the particular make and model you're buying. For a fair number of make/model combinations the best terms happen with much lower or higher credit scores. YMMV, but a quick look at the ALG will give you good clues. there is an inverse relationship between high residual values and excellent credit terms for weaker buyers. No surprise to a regular car buyer, I'm sure. While I'm at it, keep in mind that most car dealers make more on F&I than they do on the actual sale of the car.
     
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  3. malikguy

    malikguy Silver Member

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    I have to politely disagree with jbcarioca. Although, there may be a possible risk (there's always a risk) of identity theft, it is actually more harmful to your credit profile to close accounts rather than to keep them open. I have over 30 credit accounts and I'm in the high 700's (almost 800 club). The trick is to evaluate your accounts. If you have smaller accounts with limits less than $3k, those aren't doing your credit as much good because they do not have as much influence on your score. However, if that account has been open for about 5 years or more, it has more influence even though it's a lower line credit card. So you have make an assessment and decide what to do based on each individual account. Also, diversification is important. Having different types of accounts will help your score. I don't use all my cards. I may use 3 or so at any time, but to keep all of my accounts active, I will purchase something small on each card every few months. That way, I don't have to worry about the accounts getting closed.

    In regards to your score, a score higher than 720 will generally get you the best auto loan rates and a score of 750 or higher will get you the best mortgage rates. Good luck!!

    P.S. I use a website called Bill Tracker Online to help me keep track of all my accounts. I can enter all my cards, statements, and payments so that I know where all my accounts stand at any given time. Check it out if you'd like: www.BillTrackerOnline.com.
     
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  4. servo

    servo Silver Member

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    How many of those 30 credit accounts have an annual fee? The only time I can see the cost for the annual fee being worthwhile is if the benefit at anniversary is worthwhile to you, either financially or otherwise. For example, the $49 annual fee on the PC Visa is more than worth the free night certificate which could be redeemed for an Intercontinental Hotel valued over $400/night. However, not all cards are worth the annual fee, even when taking into consideration the 'negative' of account closure (although I'd be interested in a cost/benefit $ analysis of the cost of account closure vs. the annual fee).
     
  5. jbcarioca
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    jbcarioca Gold Member

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    Respectfully I think there might be a slight problem in your logic. True, pure number of accounts is not the major issue, but reported utilization can be and is not a significant part of generic scores. A large number of unused open lines does count negatively in approval criteria even though it will have no effect on a generic score. There is zero connection between credit limits and typical credit scores, there is a connection to utilization, but not limits per se. Beyond thre years open there is no added contribution to higher credit scores. In any even these issues are reported differently by the three bureaux, so the same data can produce different results. That will make little difference to anybody with excellent credit, but can be an issue for people with marginal credit. "high credit" vs "credit limit" can be a big deal.

    Best mortgage rates are not based on generic FICO, but on mortgage specific models, although generic FICO has been used mostly to bundle mortgage loans and auto loans for resale. Mortgage rates depend on deal characteristics, collateral, application data and credit scores. Despite belief to the contrary with equal deal structure and application data these is minimal if any difference in mortgage terms with generic scores at 700 and above. Some lenders, especially small ones bias towards very clean stable histories so 750+ happens. That is rare, except in refinancing.

    Auto loan rates are more a function of the collateral/underwriter/F&I margin than they are of credit score. Captives are less sensitive, local banks more sensitive, but dealer F&I margins dominate everything else.

    BTW, it is never harmful to close unused accounts if you have a long, clean credit history. I understand people thinking that it is, but it just is not true.

    In the process of building credit, collections, recovery (POD/POP, LGD in Basel jargon) and response models for a good many years I am reluctant to generalize too far on anything because surprises always happen. Not only that but YMMV between large issuers, including ones we think we all understand. Mortgage, auto and unsecured lending have also undergone very large changes recently.

    So, I do not argue that I am always correct. far from it. However, I also think I understand this pretty well, but by definition not perfectly.
     
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  6. malikguy

    malikguy Silver Member

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    I don't keep cards with annual fees, so I don't pay any. I have geared my credit towards having a lot of credit and I rarely do churns. In some scenarios, the card I have may be worth the fee, but it is rare that I find myself in that situation.
     
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  7. malikguy

    malikguy Silver Member

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    It depends on the situation as you have stated. If you are applying for a new credit card, most of the decision is based on DTI (debt vs. annual income) and FICO alone. Auto is further analyzed to make sure that the consumer is not over-extended and finally to mortgages, the most extensively analyzed credit product. So indeed, utilization does play a large role in the score overall as well as DTI. These two measurements should correlate very closely. Accounts open for a short period of time can be closed without much of an impact on those who have extensive credit profiles, but for those with weaker profiles it will have a larger impact, especially if the account was a major tradeline. Perhaps we are both stating the same things in different words?
     
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  8. MX

    MX Gold Member

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    This is off-subject, but it caught my attention as I'm currently shopping for a new car. I'm considering getting a loan through the carmaker's finance arm, but the dealers keep pushing me to some "insane" finance deals through local banks. I'm rather oblivious how the dealers managed to insert themselves into the loan process in the first place.
    So any advice what I should look for or pay attention to in getting a car loan?
     
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  9. jbcarioca
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    jbcarioca Gold Member

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    Sorry, debt to income is normally NOT use in credit card initial applications because the only information available is self reported on the application, if it is even there. There is also no way to determine debt, because credit bureau reports include balances as of a given day, usually cycle date but not always, so balances do NOT equal debt, nor are all balances included in the reports anyway. Almost everyone imagines Debt to income is a big factor and if knowledge were perfect it probably would be. Knowledge, hover, is very imperfect. FICO also is not the primary tool for large issuers. All the big ones have their own credit scores and algorithms and tend to buy FICO only for portfolio management, not origination risk.

    Auto is less deeply evaluated than most other categories and is driven very strongly by deal characteristics and percentage advance. Auto is one of the very few products still dominated by individual negotiation with 80% or more of all US auto loans originated by dealers.

    Mortgage is, I agree the most heavily analyzed, as it should be.

    Debt to Income and utilization are not always closely correlated. That depends on several factors. Just now I referred to a deck on that very point because some people in a client organization thought they were close analogues;

    Other things remaining equal, the younger and newer the credit file, the closer the correlation is; That is young people just getting started usually do not have lots of excess borrowing capacity so debt to income and utilization are almost the same. From some hundreds of credit reviews it also was true that the younger the file, higher utilization correlated well with overreported income on applications (that was only one lender but a very large one.

    Older files had lesser connection between utilization and debt to Income, and almost none at all in files more than 20 years open. That seems to have been a result of more mature borrowers to reduce number of open revolving accounts, pay off most otehr loans, and use the cards they do use very heavily. Thus they tend to show high utilization and low debt to income. Motehr-in-law research is not usually appropriate but I am typical of this segment myself. My reported utilization on the last CB report I examined (this was Equifax, and included a calculated inferred utilization attribute) was 86%. My debt to Income ratio is effectively zero because I have no debt other than accrued tax obligations and revolving balances that i pay on due date in full. The discrepancy happens because the credit report updates include the balances outstanding and not paid, are reported before the due date, and I spend a lot on cards, so utilization shows high. That is distinctly NOT rare, but is characteristic of fairly high income empty nest households.

    Finally, I am fairly certain we are not really in disagreement. We're just going into far more detail than is usual in this type of discussion. I do believe you know whereof you speak.
     
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  10. jbcarioca
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    jbcarioca Gold Member

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    There are a handful of tactics that can help with car loan negotiation. First, recognize that typical US car dealers make most of their money on Finance and Insurance income. My own rules of thumb:
    For Loans:
    1) Never tell the salesperson or closer that you plan to pay cash if you intend to. Wait until you've established a final price, then tell them. That generates squawking but saves you money. Personally I do not lie I just don't answer financing questions until the deal is done.
    2) If ypu're planning to take a loan compare rates and terms with local banks and credit unions (especially credit unions, before going to the dealership. Many credit unions also sell loans through dealers, and dealers often promote those with banners etc, especially near large government/academic/military facilities that have large credit union activity.
    3. Knowing the commercial terms, let the dealer F&I person match or better you offer. Often dealers can match or better the best offers you can get otherwise, especially when their captive finance arm is promoting special 'spiffs' for them.
    4. READ THE FINE PRINT. I shout here, because the fine print really has major pitfalls.

    For leases:
    1) This is tough, there are so many pitfalls in dealer originated leases that the risks are high for anybody even experts.
    (e.g. a few years back I led a team that devised a new lease product for a captive. One of our team members, a Harvard MBA, took out one of these leases soon after they were offered. He paid about 20% above MSRP for the vehicle because he neglected to examine capitalized cost, residual value, and some otehr mouse type.He actually worked on the product!)
    2) Check with ALG before you enter negotiations to see what residual value is for your chosen vehicle. Many manufacturers subsidize the residual values, so they may have a higher one. That will ensure taht the car at lease end will be worth less than the RV, so you absolutely will not want to termiante early because you'll end out with all that depreciation yourself.
    3) Generally don't even try to figure out imputed interest because there are so many ways to make correct, but misleading data.
    4) Look at a lease just like a rental, and you'll be fine.
    5) Recognize that the typical US car dealer makes 2-3 times as much on a lease than on a loan.

    For T&T (that is Trash and Trinkets to some in the industry)
    1) Extended warranties are a ripoff, always, if you buy form a dealer. Typical markups are 100-200%. No kidding!
    2) Undercoating, paint protection, optional anything exists for one reason: rip off consumers who don't know better. All taht stuff is at best of minimal value and sometimes harmful, but is marked up by often nearly infinite levels.
    3) if you want special wheels or otehr such stuff, buy it after the purchase. You'll save money.
    4) if you've almost closed the deal and you really want some of the stuff in 2 and 3, tell them the deals off unless they throw it in.

    Generally:
    1) Check out one of the new vehicle buying guides for your chosen model with expected dealer costs, MSRP, typical deals etc. That will allow you to set a fair price. Most credit unions, USAA and many other places offer these services and they are almost always worth it. You may even buy through one of them.
    2) if you have your heart set on a hot model all bets are off. The best you can do in that case is pay what you must. To my chagrin I have had that habit in years past. Luckily I have tended to buy a clients product so I have not overpaid unknowingly. OTOH, I have indeed overpaid. Thus, second overall rule: If you allow passion to rule your senses you'll pay, without doubt. If you choose to do that don't moan about it later. You knew it first. That is a message to myself because I seem to be doing it again right now.

    Just one more oddity. If you're buying something exotic, say, Maserati, Lamborghini, Ferrari, Bentley, Rolls Royce, even Mercedes, BMW, Porsche sometimes:

    There are often spectacularly good deals on leases. They do not want to admit they have excess supply, ever, so they make great lease deals to hide their problem. When those happen be careful but take the deals. At the moment you can get a steal on a Maybach, now discontinued, if you find one. Any high end car that is being replaced with anew model (like Maserati Quattroporte) will be a good deal. Some others have been amazing. A little research can save you tens of thousands of dollars on exotic purchases.

    end of lecture. I hope it will be helpful.
     
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  11. malikguy

    malikguy Silver Member

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    Which is why it is somewhat easy to manipulate the card issuer into giving a higher limit or grant the approval. If you have a good FICO and apply with a high income on the application (which they do not verify, unless you get the dreaded credit review from AMEX, lol...) you can generally get the approval rather easily if your DTI and utilization based on the current snapshot of your credit looks good. So factors for credits cards would be, FICO, utilization, DTI (for credit limit amount).
    Good point, I agree.
    I agree, you as well. :)
     
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  12. jbcarioca
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    jbcarioca Gold Member

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    Initial credit limit for major issuers whose policies I know do not use DTI in any guise. Zero! The algorithms vary greatly among them, but none use DTI for initial assignment.

    For credit limit increases, the six to twelve month normal review ones, the algorithm is based on spend velocity, payment behavior and credit bureau updates. Again zero DTI.

    For "credit review" and requested credit limit increases, as well as after disputes (for two big issuers, you probably know who they are) you will have DTI or sorts calculated; that is usually calculated as 'total revolving debt to stated gross income', but the methodology is glaringly inconsistent one to another.

    For those who do this, the attributes are inevitably written in SQL, but the same SQL attribute has different meanings for different products and times. Makes data modeling a real mess. Two of the largest five credit card issuers in the US ended out with serious asset classification problems due to such problems. One had a "cease and desist" order over the issue; the other failed and was taken over by another bank. Moral of that digression: don't necessarily believe exactly what the actual lenders tell you: they often do not really know themselves.
     
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  13. malikguy

    malikguy Silver Member

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    You are correct, I remember now. DTI is only used in credit review scenarios. I have also had DTI brought up when speaking directly to an analyst for a recon. To correct myself, I believe that the initial line is based a percentage of your annual income (possibly 10%, in some cases).
     
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  14. jbcarioca
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    jbcarioca Gold Member

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    That depends on the issuer. Each is different.
     
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  15. MX

    MX Gold Member

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    Thanks so much for such detailed advice. I'm planning on a car purchase (not lease, and nothing exotic). Do you think it might be worth it to try skipping the loan middleman (i.e. car dealer)? In other words, pay cash for the car, then try to finance it directly with a lender. Or would this route be even more cumbersome and costly?
     
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  16. malikguy

    malikguy Silver Member

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    Cumbersome and costly. Negotiate your rate with the dealer. There is a fine line between how to play out the deal. On one hand, sometimes you can get very good financing from the dealer, but you still want to get the best price for the vehicle. You have to make sure that you are getting the best price no matter what and then focus on the financing in two separate steps. I normally finance through Chase Auto but the rate was 3.16% at the branch. The dealer offered me 1.95% if I financed through them (also through Chase Auto). You can win both ways, but just make sure you win on both legs, the price and the financing.
     
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  17. jbcarioca
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    jbcarioca Gold Member

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    That depends. If you do get the very best deal a dealer has to offer it should be competitive with the best generally available options. And...you cannot beat it for simplicity and convenience. I would check locally available bank and credit union rates before going, negotiate your best deal without disclosing whether you'll finance or not and if they can match the best rate you find, take it! A well-informed buyer can usually get a very good deal from a dealer. Even when they make little from teh finance they generate good will with their lenders, and that is an important thing for them.
     
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