Does canceling credit cards affect your credit score?

This can lower your credit score in two ways, but fairly minimally.

One metric credit card issuers can look at is called debt burden, which is basically the amount of credit you use, divided by the amount of credit you have available.  The lower this number, the less risky you are perceived to be and teh higher your FICO Credit Score.  This can be lowered by either using less credit, or having more credit available to you.  By reducing the credit you have available, like canceling a credit card, the higher your debt burden, the lower your FICO score.

As well, the longer you hold a credit card account in good standing, the better.  This means that older credit card accounts carry more weight than newer accounts because they can demonstrate a long term ability to pay on time.  If you have a good payment rate (i.e. you pay on time, all the time) then this will help demonstrate to issuers that you manage your credit responsibly, which Banks like.

So what do you do?

  • If you never use your card, make sure the balance is paid off and there are no fees for not using it or no fear someone will find and start using it, it is better to keep it and use it occasionally.
  • If the bank calls to ask if you will close your account for not using it, you should have the right to refuse their request and keep the account, and the credit line, open.

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Are there any tricks or speedy ways to repair your credit score?

To repair your credit quickly it’s important to know the rules. 

It’s important to note that the credit system is designed to hurt people.  Once you fall behind, this system puts you into a downward spiral.  This is no accident.  The system is controlled by the banks, who make much more money off someone with bad credit than someone with good credit.

That being said, there are a loopholes that can usually improve even the worst credit report.

Here’s how Credit Repair Works:

The Fair Credit Reporting Act gives you the right to dispute anything on your credit report.  If an item cannot be verified, it must be removed.  This is the basic principal of all credit repair.  Even accurate items can also be removed. You just need to learn the rules.  Credit repair specialists know these rules, but it’s important to know that there is nothing a credit repair company can do for you that you cannot do for yourself. However, the work can be tedious so this is why credit repair companies flourish. It’s a lot of record keeping. Credit Repair Software can make it easier and faster, by guiding you and generating the letters but you can get the job done with Microsoft Word, as well.

Credit repair works best by paper mail.

It’s more difficult for the Credit Bureaus to deal with then online submissions, so this often works in your favor.  Sometimes they just can’t verify it all within 30 days, and the item gets removed.

When you send dispute letters to credit bureaus…

Make sure you never send more than 5 items to a credit bureau within a 30 day period, otherwise if you send a huge laundry list of items, they’re going to throw it out as “frivolous” and then you must combat that (unpleasant and time consuming) so keep dispute letters to 5 or fewer items. Yes, credit repair takes time.

Here are 7 steps to increase a credit score fast:

1) Correct all errors on the credit reports

Nearly 8 out of 10 credit reports have errors.  That means, remove the errors and your score will most likely increase. Go through your credit reports very carefully. Especially look for; Late payments, charge-offs, collections or other negative items that aren’t yours, Accounts listed as “settled,” “paid derogatory,” “paid charge-off” or anything other than “current” or “paid as agreed” if you paid on time and in full, Accounts that are still listed as unpaid that were included in a bankruptcy, Negative items older than seven years (10 in the case of bankruptcy) that should have automatically fallen off your report (you must be careful with this last one, because sometimes scores actually go down when bad items fall off your report. It’s a quirk in the FICO credit-scoring software, and the potential effect of eliminating old negative items is difficult to predict in advance). Also make sure you don’t have duplicate collection notices listed. For example; if you have an account that has gone to collections, the original creditor may list the debt, as well as the collection agency. Any duplicates must be removed!

2) Be sure that proper credit lines are posted on the credit reports

This is one of the most overlooked credit repair secrets.  In an effort to make you less desirable to their competitors, some creditors will not post your proper credit line. Showing less available credit can negatively impact your credit score. If you see this happening on your credit report, you have a right to complain and bring this to their attention. If you have bankruptcies that should be showing a zero balance…make sure they show a zero balance! Very often the creditor will not report a “bankruptcy charge-off” as a zero balance until it’s been disputed.

3) If you have negative marks on the reports, negotiate with the creditor/lender to remove them

If you are a long time customer and it’s something simple like a one-time late payment, a creditor will often wipe it away to keep you as a loyal customer. If you have a serious negative mark (such as a long overdue bill that has gone to collections), always negotiate a payment in exchange for removal of the negative item. Always make sure you have this agreement with them in writing. Do not pay off a bill that has gone to collections unless the creditor agrees in writing that they will remove the derogatory item from your credit report. This is important; when speaking with the creditor or collection agency about a debt that has gone to collections, do not admit that the debt is yours. Admission of debt can restart the statute of limitations, and may enable the creditor to sue you. You are also less likely to be able to negotiate a letter of deletion if you admit that this debt is yours. Simply say “I’m calling about account number ________” instead of “I’m calling about my past due debt.”

4) Pay all credit cards and revolving credit down to below 30% of the available credit line

The scoring system wants to make sure you aren’t overextended, but at the same time, they want to see that you do indeed use your credit. 30% of the available credit line seems to be the magic “balance vs. credit line” ratio to have. For example; if you have a Credit Card with a $10,000 credit line, make sure that never more than $3000 (even if you pay your account off in full each month). If your balances are higher than 30% of the available credit line, pay them down. Here is another thing you can try; ask your long time creditors if they will raise your credit line without checking your Credit Report. Tell them that you’re shopping for a house and you can’t afford to have any hits on your credit report. Many wont but some will.

5) Don’t close your old credit card accounts

Old established accounts show your history, and tell about your stability and paying habits. If you have old credit card accounts that you want to stop using, just cut up the cards or keep them in a drawer, but keep the accounts open.

6) Avoid applying for new credit

Each time you apply for new credit, your credit report gets checked. New credit cards will not help your credit score and a credit account less than one year old may hurt your credit score. Use your cards and credit as little as possible until the next credit scoring.

7) Maintain at least three revolving credit lines and one active (or paid) installment loan

The scoring system wants to see that you maintain a variety of credit accounts. It also wants to see that you have 3 revolving credit lines. If you do not have three active credit cards, you might want to open some (but keep in mind that if you do, you will need to wait some time before rescoring). If you have poor credit and are not approved for a typical credit card, you might want to set up a “secured credit card” account. This means that you will have to make a deposit that is equal or more than your limit, which guarantees the bank that you will repay the loan. It’s an excellent way to establish credit. Examples of an installment loan would be a car loan, or it could be for furniture or a major appliance. In addition to the above, having a mortgage listed will bring your score even higher.

If you’re in a hurry to increase your score, all these steps combined will usually do it.

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