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  1. #1
    Deal GURU
    Join Date
    Mar 2007

    Default Credit Cards and Home Equity Loans

    Hello all,

    I am a lurker who reads the Daily Digest. I don't usually post, so bear with

    The reason why your credit score is hurt if you pay off Credit cards and then
    CLOSE the
    account, is because your credit score is based on how much credit card debt you
    have as
    opposed to how much credit you have available.

    For example, if you have 3 cards with limits of $1,000 each, your credit line is
    $3,000. If
    you have $500 worth of credit on each card, your debt to credit available ratio
    $1,500: $3,000. But, if you pay off one card, and then CLOSE that account, you
    now have
    $1,000: $2,000. That is still half, but your credit score goes down because your
    available credit has gone down.

    It is suggested that you close no more than one credit card every 6 months, so
    you allow
    your FICO score to recover. If you close to many at once, it looks like you
    cannot take on
    any more credit at all, and therefore you cannot manage your money and it is
    hard to get
    approved for loans and mortgages.

    ALSO, for everyone taking out HOME EQUITY LOANS to pay off Credit Cards, that

    backfire. If you have credit card debt, and cannot pay, the credit card company
    repossess your house. You are in bankrupcy, but you can still keep your home. If
    you take
    out a home equity loan, and you cannot pay, you can LOSE YOUR house!!! That is
    worth it!

    Hope everyone has a great day, and I'm sorry if this is too technical!

    All of my posts were transferred from
    the budget101 Discussion list

  2. The Following User Says Thank You to BiggerPiggyBank For This Useful Post:



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