I have a friend – let’s call him Steve (not his real name… or is it?)
Anyway, Steve has an eye for value. He always seems to get the best deals, the best prices, is first on line for the bargain of the century, and always seems to get a little extra out of every purchase. This isn’t news to anyone, as we all probably know someone like this – the super-couponer, the deal finder, the click till’ you get the seat you want airline passenger, etc.
But Steve is perplexed by his credit score. It’s “ok”, but not great. He was complaining about it to me the other day, because he wasn’t getting the rate he wanted on a car loan. The reason was his “average” credit score. So we talked about it a little.
Turns out, Steve is a prompt bill payer. He has never missed a payment, and never had anything charged-off or similar. He also makes pretty good money. In his mind, these all should add up to an awesome credit score. And he’s right to a degree. But he also does one thing that really hurts him: he bounces from credit card to credit card.
Steve’s eye for value makes it so he skips from credit card to credit card whenever a better rate comes up. He carries a small credit card balance (just so he can keep making payments and show steady payment history), but that balance is constantly transferred to another card – I’ll bet the guy transfers that balance every year, or even more. Then, because he doesn’t want a bunch of “open” cards that he doesn’t use, he closes previous accounts.
So basically, Steve has no real stability in terms of credit cards. And what he doesn’t understand is that your credit score is not just a reflection on your ability to pay back borrowed money. It’s also, to a degree, a reflection of your overall desirability to creditors. And, thinking about this logically, they don’t desire someone who’s going to drop them the minute someone better looking comes along. Ok, maybe it’s not quite as drastic as that dating analogy suggests, but there is a definite ring of truth there.
This is why having a long term credit card or two doesn’t hurt you one bit – in fact, it helps. It’s estimated length of credit will account for 15% of your overall credit score. Given his history, Steve would have excellent credit instead of “just ok” credit if he simply stopped jumping from card to card and hung onto one or two for a while.
The grass isn’t always greener. It’s true in many aspects of life, including credit.