Popular credit advice that's nonsense

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CarefulBuilder14
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Popular credit advice that's nonsense

Postby CarefulBuilder14 » Tue Sep 08, 2015 12:50 pm

What popular (or just semi-popular) credit advice do others think is nonsense?

One tidbit that bothers me - at least when it's taken to extremes - is the idea of "diversifying" among lenders. The thinking goes:

"Any lender can take adverse action, and it happens frequently and often for no reason. If you have a lot of CCs with different lenders, then any adverse action will never have a big effect on your credit profile."

The problem here is that adverse action is rare for normal people, and usually has borrower-specific, rather than lender-specific or macroeconomic causes. It's not random, and multiple lenders can take it against the same person in a short period of time for the same risky or undesirable behavior.

Diversifying is a sound practice for making speculative investments, and relationships with multiple lenders are good for businesses that have to borrow a lot of money to operate. But most people spend less than $10k per month on their personal CCs, and don't need a lot of diversification.

I have cards with 5 different lenders, but mostly because that's just how it happened with the cards I've wanted. Lately 90% of my spending is with Amex and Chase. If I could move Brooks Bros from Citi to Barclaycard, I would, just so I'd only have to log in to 4 websites instead of 5.

Of course, diversifying certainly makes sense if you're doing MS or extreme bonus hunting - behaviors which irritate most lenders. Those behaviors have their own risks.

But I see some people take the approach of being "disorganized accumulators" - adding new accounts with no clear plan other than general credit "relationship/empire building". When they add 20 cards from 15 different lenders in the span of a year or two, it's only natural for some lenders to get uneasy or take adverse action - adverse action which would have been totally avoidable if they didn't get a bunch of cards they didn't really need.

So that's my thinking. What other advice is (for most people) nonsense?
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
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Letting new accounts cool off since May
Really not sure what I'll add next or when


Kevin86475391
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Re: Popular credit advice that's nonsense

Postby Kevin86475391 » Tue Sep 08, 2015 4:48 pm

Great points about people over-emphasizing the need to diversify lenders and opening too many accounts all at once and especially without a clear plan.

My biggest bad credit advice pet peeve is when people take on car loans, student loans, or personal loans they don't really need because it will 'build credit.' It absolutely will, but that's far too expensive an option IMO. It's not like credit cards where someone can often get the card completely free or with a small fee and never pay any interest or fees if they use it responsibly. Most loans have some combination of origination fees and early repayment penalties and of course most people keep the loan around for the long-term, paying interest every month on a loan they didn't really need - and quite possibly blew through just for the hell of it because it was there and they were 'building their credit.'

I think the major take home advice is the fundamental piece of wisdom about not taking out credit you don't need. That's especially true in the form of non-credit card credit IMO.

Again, I'm talking about taking out credit/loans people don't need actually need just to 'build credit.' The point of good credit is to SAVE money and have options when you DO need credit. Not to spend your money needlessly on interest and fees or raise your obligations-to-income ratio before you even need the credit.

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Re: Popular credit advice that's nonsense

Postby CarefulBuilder14 » Tue Sep 08, 2015 6:43 pm

I totally agree. I once considered getting a share secured loan from a credit union, just to have more diverse credit experience on the report. I certainly had no financial need to take out the money.

Fortunately I came to see that a share secured loan wouldn't really help me for the first half of the loan's life, since the account would be new and the balance on the loan would be high. It would do very little to help me after I'd paid it off. The benefit would be limited - just giving my FICOs a temporary stimulus during the second half or so of the loan's life.
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
SD: Arrival BrooksBros BCE ED IHG
Letting new accounts cool off since May
Really not sure what I'll add next or when

Vermonster
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Re: Popular credit advice that's nonsense

Postby Vermonster » Wed Sep 09, 2015 9:05 am

Well the biggest misconception I think is that you have to carry a balance. I have heard many reasons, like:
  • It will increase your credit score
  • They will close your account if you don't
  • There is a fee for paying your whole balance
  • It increases your chance of a CLI
As we know, this is all BS.


As to the diversifying, I agree 99%. I have 2 Chase, and Amex and a Citi card. I leave the Citi at home as my back up card. I carry the 2 Chase and Amex in my wallet. If it were to every be stolen or lost, I would be pretty screwed. I like knowing that if almost anything were to happen to my wallet, I wouldn't be up a creek. I guess no one NEEDS diversification, but I can see the advantages, however small they may be.

I like to have diversification in my card's networks. There are certain advantages to having a Visa (virtually 100% acceptance worldwide, Visa checkout) and other advantages to having an Amex (Costco for now, Amex offers), and a few to having an MC (Priceless cities). But if I had to pick one, Visa is always a safe choice.
Chase Freedom $9k~~Chase Sapphire Preferred $6.5k~~Amex Blue Cash Preferred $12.4k~~Citi Double Cash $4.7k

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Re: Popular credit advice that's nonsense

Postby augiedog » Wed Sep 09, 2015 10:30 am

"Don't cancel cards you don't use and have no fees."

This is somewhat helpful advice, but it's not always useful from my experience.

Keeping a card open helps your age of credit, but for cards you never use, and being quite old, they may have introductory credit limits that the same creditor would give you 10x as much as if you were to apply today than two years ago. They also stifle you from getting introductory bonuses and high credit limits from cards of the same creditor. I never use my Bank of America rewards, and tried applying for the better balance; I got a letter saying I already have too much credit with Bank of America. Then I asked for an increase and was approved: what gives?

I have noticed unused cards will sometimes go out of their way to mail out balance transfer offers as a way of enticing the cards use again; but this is seldom for most creditors. Bank of America seems to like doing that though.

Yes, age of credit does help your score, but if you're losing out on $200 sign up bonuses and 18 months of 0%, then it's not really helpful.
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Re: Popular credit advice that's nonsense

Postby CarefulBuilder14 » Wed Sep 09, 2015 6:35 pm

I like carrying cards of all four networks, and also having a backup card or two not in my wallet (usually SM, sometimes BCE or Arrival). Priceless cities once saved me a little money, but then I found out AAA could have saved me a little more.

Does BofA generally not let customers move CLs around between cards? Barclaycard does email me a few BT offers, despite a PIF history.

AAoA is helpful for bonus hunting, though I've never had an old account be an obstacle to getting a new one. It might mean a low CL, but regardless of the CL, the signup bonus would still be good.
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
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Letting new accounts cool off since May
Really not sure what I'll add next or when

kdm31091
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Re: Popular credit advice that's nonsense

Postby kdm31091 » Wed Sep 09, 2015 6:44 pm

CarefulBuilder14 wrote:I like carrying cards of all four networks, and also having a backup card or two not in my wallet (usually SM, sometimes BCE or Arrival). Priceless cities once saved me a little money, but then I found out AAA could have saved me a little more.

Does BofA generally not let customers move CLs around between cards? Barclaycard does email me a few BT offers, despite a PIF history.

AAoA is helpful for bonus hunting, though I've never had an old account be an obstacle to getting a new one. It might mean a low CL, but regardless of the CL, the signup bonus would still be good.


BOA moves limits, but they take a HP to do it so often not worth it.

I think the "diversifying" advice is generally nonsense. No, you shouldn't have 10 Chase cards and nothing else, but in general, go for the cards that suit your spend, whichever lender supplies them.

The "relationship" advice is something that really burns me up. People honestly think they need to establish a "relationship" with a crappy card before they can get the card they actually want from that lender. Makes no sense. Build your credit and then apply for the card you actually WANT. Relationship, to me, means nothing. When you apply for a new card, your creditor is pulling your report either way. They will see accounts outside of their bank. If this were the era before computers, I could see "relationship" possibly mattering more, as data outside of the one lender may be harder to get. But in this day and age? Doesn't matter. Your credit history is there for all to see.

I also hate the general trend of people applying for cards they don't really want long term, for a bonus. Then they force themselves to spend more to meet the bonus. Then they whine because the points weren't as useful as they thought. This is because in general, forums favor "app app app!" without even considering if the card meets someone's needs. They feed into impulsiveness, which is counterproductive to building good credit. Every new account stays with you for 10 years. So it's nothing to take lightly, IMO. Outside of very high spend, most people will not benefit significantly reward wise from spreading their spend across 15 cards so the egging on to "app app app" puzzles me.

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Re: Popular credit advice that's nonsense

Postby amexmember12 » Wed Sep 09, 2015 11:57 pm

augiedog wrote:"Don't cancel cards you don't use and have no fees."

I have noticed unused cards will sometimes go out of their way to mail out balance transfer offers as a way of enticing the cards use again; but this is seldom for most creditors. Bank of America seems to like doing that though.



BoA is currently doing this to me right now, i get one every few weeks. I have a Travel Rewards card that I use for once or twice a month.
CSR $24K | Discover IT $22.9K | AMEX BCE $15K | AMEX EveryDay $12.9K | Marriott Premier - $11K | Delta Platinum $10K | Freedom $6.5K | Freedom $6K | BOA Travel Rewards - $2.7K | AMEX Premier Gold

Vermonster
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Re: Popular credit advice that's nonsense

Postby Vermonster » Fri Sep 11, 2015 4:34 pm

augiedog wrote:"Don't cancel cards you don't use and have no fees."

This is somewhat helpful advice, but it's not always useful from my experience.

Keeping a card open helps your age of credit, but for cards you never use, and being quite old, they may have introductory credit limits that the same creditor would give you 10x as much as if you were to apply today than two years ago. They also stifle you from getting introductory bonuses and high credit limits from cards of the same creditor. I never use my Bank of America rewards, and tried applying for the better balance; I got a letter saying I already have too much credit with Bank of America. Then I asked for an increase and was approved: what gives?

I have noticed unused cards will sometimes go out of their way to mail out balance transfer offers as a way of enticing the cards use again; but this is seldom for most creditors. Bank of America seems to like doing that though.

Yes, age of credit does help your score, but if you're losing out on $200 sign up bonuses and 18 months of 0%, then it's not really helpful.


On top of that you should really be monitoring dormant cards for random auto-payments or fraud. There is no quicker way to ruin your credit than to miss a fraud charge and never make the payment.
Chase Freedom $9k~~Chase Sapphire Preferred $6.5k~~Amex Blue Cash Preferred $12.4k~~Citi Double Cash $4.7k

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Re: Popular credit advice that's nonsense

Postby CarefulBuilder14 » Sat Sep 12, 2015 12:49 am

Vermonster wrote:On top of that you should really be monitoring dormant cards for random auto-payments or fraud. There is no quicker way to ruin your credit than to miss a fraud charge and never make the payment.

Part of the reason I prefer Amex, Chase, and Discover to Barclaycard is that I get email notifications about card-not-present transactions. I didn't have them in place for my first card-not-present fraud, but I use them now.

Yes, the card info could be skimmed from the magnetic strip and the card cloned for use on non-chip-reading machines, but a fraudster has to put in more work and take more risk of being caught (or a partner being caught) compared to a card-not-present charge.
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
SD: Arrival BrooksBros BCE ED IHG
Letting new accounts cool off since May
Really not sure what I'll add next or when



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