December 8, 2006

Understanding Credit Score - HELCO and Your Credit Score

The question we're looking at today is, "Is it a good thing for my credit report to consolidate my credit cards with a HELCO?" The answer, which seems to be a common answer when it comes to credit score, is "it depends". First, it's important to note that from a credit score point of view, a HELCO can be viewed as an installment loan (just like a mortgage or car loan) or a revolving line of credit (just like a credit card).

The determining factor seems to be the size of the HELCO. In either case it is a line of credit and the utilization rates apply. Remember 30% of your FICO score is based on the percentage of debt to the available credit. The rule of thumb is to keep the utilization percent under 30%. If you decide to consolidate your credit cards into a HELCO there are things to consider when it comes to your credit score. One is to keep the utilization rate low - under 30%, so you might want to get your credit line approved for higher than you need. After you have consolidated your credit cards into a HELCO, the question is "what to do next?" If you cancel all of your credit cards, it will have a negative effect because it will raise your utilization rate and it will lower the average length of time you've had credit. The average length of time you have credit is 15% of your FICO credit score.

If you decide to cancel some of your credit cards, cancel them in the following order:

Visa or MasterCards that do not report your credit limit to the credit bureaus.
Department store credit cards.
If you have multiple Visa and MasterCards, cancel the newest ones first.

An alternative to canceling credit cards is don't cancel them, just cut them up. If you ever decide that you need the credit again, just request a new card.

Remember, if you’re not working the system, it’s working you.

PapaJoe