Comments on: I've paid off all my credit cards.... now what?

Question: I've paid off all my credit cards.... now what?

weiler63 — Wed, 07 Mar 2007 02:11:54 -0800

I've paid off all my credit cards.... now what?

Over the past 6 months. I have managed to zero out the balances of all my CC's down from 10k.

Any help as to how long before this gets reflected in my credit score, and what if any tips you have for boosting that score.

If it helps, I'm keeping the lines open, and use them sporadically for small item purchases. Thanks in Advance. It is certainly a great day when you look online and see all zeros in the cc balances.

--Credit Debt Free

By: jbickers

jbickers — Wed, 07 Mar 2007 02:53:13 -0800

Just want to say congratulations - working on this myself, and it's a treat to see somebody who has accomplished it!

By: meerkatty

meerkatty — Wed, 07 Mar 2007 03:02:41 -0800

Now arrange automatic payment of your credt cards each month by your bank. This helps me enormously - impossible to rack up balances again.

By: Forktine

Forktine — Wed, 07 Mar 2007 03:14:40 -0800

Unless you are buying a house or car soon, and will need a loan, the credit score is pretty meaningless. (Sometimes employers will use credit histories as part of a job application, but I don't know how common that is, and whether they look at the raw score or for red flags in the history.)

So I would suggest ignoring your credit score, and see if you can maintain what you have been doing. Since you have no more debt, you can now build up savings --- wouldn't it be cool to be $10,000 in the black six months from now? $20,000 (plus accumulated interest) six months after that?

By: fuzz

fuzz — Wed, 07 Mar 2007 03:28:43 -0800

Congratulations! What you've done is like going on a successful diet; now the challenge is to keep it up.

Once you've gotten out of debt slavery, the next step is to break the shackles of living paycheck-to-paycheck with no savings. First, take the money you've been dedicating to paying down your debt every month, and start putting the same amount every month in a money market fund. Do it on payday ("pay yourself first"), before you even think about bills and expenses. Keep saving until you've got 6 months' worth of living expenses stashed away. That will give you a basic security cushion that will suddenly open up more freedom in your life.

Once you're over that hurdle, keep going. Start investing half of what you save every month in a stock index fund, if possible in a tax-free or tax-deferred retirement account. That's long-term money that you shouldn't plan on touching for at least 10 years. If you can keep that up for 20 years or so, you'll be able to comfortably retire early. Meanwhile in an alternative universe you've left behind, the spendthrift anti-weiler is still toiling away until he's 75 years old.

By: FergieBelle

FergieBelle — Wed, 07 Mar 2007 04:18:37 -0800

Fuzz is right on.
Congratulations.

Make sure you have disability insurance!

By: vkxmai

vkxmai — Wed, 07 Mar 2007 04:30:20 -0800

Good point Fergie, disability insurance is one of the most important investments my mother ever made as an RN.

By: cebailey

cebailey — Wed, 07 Mar 2007 04:55:43 -0800

Once I paid off my post-college credit card debt, I used my credit card (I only had one) for set, specific purchases each month. In my case, I bought gas for my car with my credit card, and ONLY gas--nothing else. This way, I still got to use the card, which as I understand is good for my credit, but I kept myself from using the credit card to buy other stupid, pointless stuff, which got me into trouble in the first place.

By: uncballzer

uncballzer — Wed, 07 Mar 2007 05:11:22 -0800

http://www.getrichslowly.org/blog/

By: junkbox

junkbox — Wed, 07 Mar 2007 05:56:06 -0800

Original get rich slowly entry

By: Dizzy

Dizzy — Wed, 07 Mar 2007 05:56:32 -0800

Listen to fuzz!
And congrats!
(Thank God for Tax Refunds and Child Tax Credits...)

By: Lyn Never

Lyn Never — Wed, 07 Mar 2007 06:41:57 -0800

It will probably take 2-3 months for your credit scores to catch up with your 0 balances, so you'll probably get a jump there, and then probably a bit of slow adjustment up over the subsequent months. But if you weren't in trouble - past due, missed payments, in collection, etc - it's not going to be that big a change. Having the debt itself isn't all that bad for your credit score, unless your debt-to-income ratio was really scary. If you did have dings, it can take about 14 months from the last ding for them to disappear, but every month you put between you and the last mistake is good.

If you haven't checked your credit score lately, do so now so that you can check again in a few months to make sure it is correctly reflecting your credit/balance situation.

By: rkent

rkent — Wed, 07 Mar 2007 06:53:12 -0800

Others have good suggestions on staying in the black financially.

Any help as to how long before this gets reflected in my credit score,

Well, if you're waiting to put some particular adverse event behind you (a seriously late payment or 2?), then you still have a long wait, if it was accurate and you can't contest it. Putting things in order does not make these go away.

But if you're just wanting to get some marginal improvements to a relatively acceptable credit score, consider these aspects:

Don't apply for new credit. This signals that you're about to take on a lot of debt, and so they hit your credit score for it. (In reality, wait to apply until it's something important, like a house or a car; don't sign up for new cards or lines of credit)
Keep your balances low but do not cancel any cards; having lots of available credit is good. In fact, you may want to call up all your cards and ask for an increase in your max balance just to improve this stat. Unless it would lead to bad spending discipline on your part, of course.
Always pay everything on time! Realistically if you're a week late they won't call up Experian, but the 30+ day overdue payments are really killer and take forever to go away.

(I know there's lots of misunderstanding about what actually goes into credit scores, and that list is of course not exhaustive. My info comes from some college / law school presentations I saw; sorry, no links.)

By: aught

aught — Wed, 07 Mar 2007 07:01:49 -0800

Great to hear. A good next step would be to get in on your employer's retirement (i.e. 401k) plan (if you're employed full-time and they have one) -- particularly if they match a part of your contribution. I am always amazed at people who essentially forego part of their compensation/benefits by not taking advantage of this sort of matching contribution. And, as others have said, whatever kind of savings and/or investment plan you can start to build up is something you will very much appreciate in the future.

For savings, there are a couple of online savings accounts (INGDirect, Capital One) that offer much higher interest rates than your local bank or credit union can usually offer.

By: TedW

TedW — Wed, 07 Mar 2007 07:34:54 -0800

A lot of good advice, but another point to consider is that if you are living in the black and saving money, plan ahead so that you don't have to borrow and your credit score won't matter. This is what I try to do and I just bought a new car without borrowing; 2 years ago we only had to borrow a little bit on my wife's car and paid it off in 2 years. Not having monthly payments for anything other than a mortgage (and utilities and so on) is nice and makes it easier to save.

By: Amizu

Amizu — Wed, 07 Mar 2007 07:46:56 -0800

Congratulations as well!

Just a comment re: Lyn Never's comment - your debt/credit ratio actually makes up about 30% of your credit score, so it is important to keep a "good" ratio. Good job! (The link is to a CNN piece - 5 things to improve your credit score, btw.)

And a comment about rkent's comment: Don't apply for new credit. ... (True, but the next statement is a bit contradictory): In fact, you may want to call up all your cards and ask for an increase in your max balance just to improve this stat.

This can be great for your credit score as rkent says (ratio of credit available to credit used improves) BUT, just remember that calling your credit cards to ask for an increase in your credit limit is actually "applying for new credit" - at least with some credit companies in my experience. So you could get a small ding on your credit score immediately (like 3 points) just for asking. (At least, I think it's just for asking - might be for asking and being denied additional credit.)

As for how long it takes - This is purely anecdotal, but I recently paid off a big chunk as well, and my credit monitoring service informed me almost immediately that my FICO score had improved a bit. So it may take longer, but you might get a boost very soon.

Other tips for boosting that score? 1. keep balances low & available credit high; 2. no late payments (if you keep cards open); 3. longterm - try to keep the same cards for a long time (new cards hurt you); 4. here's a good one re: credit limit - card companies like to misreport your credit limit as 0 or n/a. Dispute that. the three credit agencies all have online dispute mechanisms, or you can submit letters. The credit card companies are lowering your credit score when they report your credit limit as zero or n/a (which helps them screw you with a high credit rate).* 5. keep getting your APRs lowered - if you ever need to carry a balance in the future, it will be easier to pay down; 6. If there are any mistakes, correct them. Even if you did make a recent late payment, the credit card companies might very well forgive you, and agree to notify the credit agencies to remove the ding. Follow up on that. 7. Googling pulls up lots of lists of "x ways to improve your FICO score" - read those.

*I can't remember where I read that, but when I checked my credit reports I found it was true.

Good luck!

By: Alt F4

Alt F4 — Wed, 07 Mar 2007 07:59:17 -0800

Good job.

General advice for setting up financial stability are roughly as follows:

1. Save $1,000 or so as an immediate cushion.
2. Pay of all credit card debts
(you're here)
3. Save 3 to 6 months' living expenses
4. Contribute to retirement plans / educational savings plans

Seriously, congrats for paying that off, and in such a relatively short time.

By: weiler63

weiler63 — Wed, 07 Mar 2007 09:39:40 -0800

Thanks for all the advice... Looks like I've got to start getting that emergency fund together

By: mathowie

mathowie — Wed, 07 Mar 2007 09:55:56 -0800

It took me about three months before my credit report reflected that I had paid off all my credit cards a couple years ago when I finally did it. I was bummed because I bought a house about a month after I paid the cards off, and while I got a great interest rate on the house, I bet it could have been another 1/8th lower if my credit report was fully up to date.

By: rkent

rkent — Wed, 07 Mar 2007 10:08:20 -0800

And a comment about rkent's comment: Don't apply for new credit. ... (True, but the next statement is a bit contradictory): In fact, you may want to call up all your cards and ask for an increase in your max balance just to improve this stat.

I know they're contradictory in principle, but they're considered differently in practice: growing the size of your current accounts isn't as suspect as asking for new ones. Seems illogical, but there it is.

I'm quite surprised that you saw a ding when you asked for a raise in your account max; I have definitely never noticed that and I've been told in several seminars that it's only the applying for new accounts (cards, lines of credit) that does it. Guess this just highlights the problem with having it be based on proprietary algorithms...

By: phearlez

phearlez — Wed, 07 Mar 2007 14:28:38 -0800

Debtorboards.com, the only apparent inheritor to the ArtOfCredit.com crown, has information on the forums on maximizing your credit score for the sake of mortgage rates.

By: wfc123

wfc123 — Wed, 07 Mar 2007 15:23:36 -0800

I consolidated after I paid mine off.

I'm down to one Amex, one Visa and an ATM/Check card.

I got rid of two Visas and an MC, and all of my retail store cards and gasoline station cards.

By: drstein

drstein — Wed, 07 Mar 2007 21:13:12 -0800

Start feeding a Roth IRA with the $$ that you were using to pay off the credit cards.