Yesterday I was talking about what went into your credit score. We had payment history, length of credit history, amounts owed, new credit and types of credit in use.
Today, I want to discuss length of payment history. Obviously the longer your payment history the better your potential score. This assumes you have a good payment history. If you have been late in the past get current and stay current.
One mistake I have seen people make is closing all their credit cards after a bill consolidation loan and maybe leave one open line.
Conventional wisdom would be that since I no longer have all theses credit cards my score should go way up or least up.
Well that may be entirely true. Let's say you have major credit card not a store credit card for 8 or 9 years. You never missed a payment everything on time. However, this is one of the credit cards you decided to close after consolidating your bills.
Now the next newest credit card is only one year old. In effect you wiped away 8 years of good credit payment reporting. Now if you happen to miss a payment it hurts your score.
Let me use a school example:
You take a 100 question test and you miss one question your score is 99%, very good.
Next you take 10 question test and you miss one question your score is 90%, still good.
Next you take a 5 question test and you miss one question your score is now 80%, good.
Next test is 2 questions and you miss one question your score is now 50%, not good.
This is what can happen by closing all your credit cards when you consolidate all your bills into a home equity loan or even one credit card.
LESSON: Try to keep one old credit card even if terms not good. Still use it for something small and pay a little interest. This can help with keeping a longer payment history.
Please send any questions you may have regarding debt and I'll try to answer to my best ability.
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