| Which
Credit Cards Look Better on Your Credit Report
Scott,
Let me start off by saying I love this website! I have a couple
of questions. I have been told that certain credit cards (e.g.
Capital One, Cross Country, and others like those) do not
carry a lot of weight on your credit report. I was always
under the impression that all credit cards carried the same
weight. What is the truth? My next question concerns paying
them off. I would like to pay off my credit cards. Should
I just pay them off and try not to use them? (I have tried
this before and failed). Or should I just go ahead and cancel
them. I am really getting sick and tired of credit cards and
I want to stop using them because they put too much pressure
on me. Please advise.
Thanks,
--Nichole
Nichole,
Thanks for writing!
Great questions! It certainly does make sense that some credit
cards will look better on your credit report. However, I would
think that it depends on who's looking. I'm sure that each
bank has their own criteria for deciding how to "score"
your report based on its contents. You can get a copy of your
credit report by clicking here.
In fact, my suspicions of this are proved correct after speaking
with Norm Magnuson, President of Public Affairs, from the
Consumer Data Industries Association.
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Scott: "Are there certain types of credit cards that
look better on a credit report."
Norm: "The lenders make that decision."
Scott: "Can you tell if a secured or unsecured credit
card is listed on a credit report and does that affect your
score?"
Norm: "No, they don't designate secured or unsecured."
Scott: "So all lenders have their own criteria."
Norm: "Oh, absolutely. All 10,000 lenders develop their
own underwriting criteria. Some, because of their interest
rates, and other factors, are willing to provide cards or
loans to consumers that might be less credit-worthy than others.
With all of the competition out there, you ought to shop around
for credit."
Scott: "That's a fact! The only way these banks are
going to get new people is to steal them from other banks."
Norm: "They do that by providing better terms and rates."
Scott: "As far as your credit report goes, is it better
to have higher limits or lower limits?"
Norm: "Limits don't matter as much as utilization rate.
Percent outstanding to credit limit. The ideal is about 33%
to 34%."
Scott: "Do you mean ideal for scoring?"
Norm: "Yes. The less credit you have outstanding, relative
the limit, the better off you are."
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As far as paying off your credit card goes, that's always
a good plan. I do however, recommend that you do not close
your accounts because you may need them to make the banks
compete for your business in the future. You don't want to
be at the mercy of any one bank.
I do understand that you've tried to do that in the past.
That is, keep your zero-balance cards and not use them. You
mention this failed. I'm guessing that you mean you ended
up continuing to spend on those credit cards after they were
paid off. What I do is put all credit cards with a zero balance
in a file. I call that file the "credit-card graveyard,"
where I leave cards that are not intended for use. This helps
avoid any sort of impulse purchasing. Later, if I decide that
I really do need to use one, I just "exhume" a card.
:)
Hope this helps!
Regards,
Scott
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