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For the last five years I have been going to bed thinking about my credit card debt. It kept me up many nights and caused lots of panic attacks. It was a result of two bad years 2007 and 2008 where I just could not get a job for anything and chose to pay for my mortgage and other expenses using credit card convenience checks and cash advances.
By the time I got a job in 2009 I was in debt $60,000 and was paying minimum payments and making no progress at all towards paying off the $60K in principal debt because of very high interest rates. From 2009 to 2012 I was maxed out on all my credit cards paying about $1000 a month which most went to interest.
Believe it or not I was never late on a payment and managed to keep a good credit rating except for the fact that my credit utilization was very high.
I thought about bankruptcy but didn't want to lose my home so I didn't go through with it.
Finally I landed a job in a different community, (I will be moving in January) with a lower cost of living and are now finalizing my house sale. I will make lots of profit in the sale and will be able to write checks and pay off ALL my credit cards down to a ZERO BALANCE and still have lots of money left over.
I would like to cut all my credit cards up in a hundred pieces and burn them in a symbolic gesture and never use a credit card again. (I will use my wife's credit card on occasion where I am a authorized user but only after asking her for her OK)
Here is my question: What will happen to my FICO score if I never use a credit card ever again after paying off all my credit card accounts and cutting all my cards in a million pieces? Will my FICO score go down each year due to not using credit?
(I am very interested in maintaining a good FICO score because we may buy a home in the next 3-5 years and want a low mortgage rate)
If you stopped using your credit cards, your score will go up simply because your total debt will fall and that is the #2 highest weight component of your score. #1 is your payment history.
If you closed the accounts, some of the lower components may get a little worse - the average age of an open account and the total number of accounts. It's a bit counterintuitive but the card companies have data that the more credit you have maintained and been granted, on average the better credit risk you are.
In this situation, the net of it is your score will improve. To maximize the improvement, simply don't close the accounts. You might want to keep them open and active by charging something like once a year and then paying it off quickly, but that depends on you remembering to do all that.
I read somewhere else that unless I use my credit cards in the future at least once every six months I will no longer have a FICO score and that would hurt me if I need a mortgage or other type of credit like a car loan in the future. Translation: if you don't keep charging you will be hurt by the evil banking industry and will no longer be given credit.
What do you think about this?
* My orginal post was not about cancelling credit cards- just stop using them.
If you stop using them, they will eventually close your accounts. Until that happens, your score will not drop. After it happens, your score will probably go down, as you will have no active lines of credit. But you will still have a score, since closed cards stay on your account for 7 years. So will the mortgage. So you will still have a score for the next 7 years. If you don't put anything else on credit (including a mortgage or car) during that 7 years, then 7 years from now, things will start dropping off your report until nothing is left. At that point, you will have no score.
But yes, your score will drop as cards get cancelled from non-use. The best thing to do if you want to keep your score high is to keep the cards open, and just charge something every 3 months or so, and then immediately pay it off. If you are tempted to use the cards, I know some people freeze theirs, so it is a lot of trouble to get them out and use them.
And a big congrats on getting out of debt. That puts you ahead of a large part of the population out there.
I don't think the 6-month rule is anything close to true. First, it's all dependent on the card issuer, as long as they report paying on time or no late payments, the card is active and in good standing as far as FICO is concerned.
Whether a card issuer stops reporting a card because of non-use is totally based on their own policies. I think we all have single-retailer cards (Banana Republic or Macys) that can go years without being used - many are still reported and they will generally send you a warning before they close it.
For FICO purposes, there is no reason to close them- they raise the average time your accounts have been open and reduce the utilization percentage of your total credit lines. You just have to make sure no one charges anything on them.
No your scores will not drop each year because of non use of your credit cards. But your scores would not go up by great amounts either. You need to maintain credit for that to happen. Even if it's just one card only.
Last edited by Europeanflava; 11-02-2015 at 08:30 AM..
If the accounts are open your credit score will remain. If you close all your accounts and have no activity for 6 months of more then you have no score.
But FICO is changing their score system to include cellphones and other crap...so.
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