Lori and Marek Fuchs have never fought in their 16 years of marriage—except over money. In this column, Mr. and Mrs. Fuchs, a real-life married couple with three kids (ages 11, 7 and 5), will articulate their very different approaches to personal finance. Last round, after broken promises on both sides, they decided to pay for everything with debit cards.
This round, she says: Having store credit cards with zero balances is good for our credit score. He says: No way.
Mr. Fuchs says: Remember the other day when you told me to grab a few singles out of your wallet?
Mrs. Fuchs says: Yes.
Mr. Fuchs says: Well I accidentally dropped your wallet and enough store credit cards fell out to cap a landfill.
Mrs. Fuchs says: Now you are exaggerating. I know I have a few but I hardly ever use them!
Mrs. Fuchs says: That was before we had kids.
Mr. Fuchs says: But why do you have them if you hardly use them?
Mrs. Fuchs says: Well, first of all, most have zero balances. And don’t forget I’ve given them up altogether, since last week, when we promised to only use debit cards. But take our Sears card, right? We bought a Kenmore dishwasher more than a year ago. Sears was offering 0% financing if you opened up a card and paid the sum off within a year. That’s just what I did. And why not? We got a free loan. Where’s the harm? And sometimes the stores offer you 10 or 20% off on the day’s purchase if you open an account. If it is a big shopping day, don’t you want me to save 10 or 20%?
Mr. Fuchs says: Well, what if your bevy of inactive cards is closed down on you? That’ll kill your credit.
Mrs. Fuchs says: Wrong again, honey. As long as there is not a balance on the card when I terminate, it will just go down on my credit report as “closed.” That’s something you don’t have to worry about from a credit score perspective. It's way different than the scary alternative: a designation of “closed by grantor,” which means the card company shut it. That's what hurts your credit. Just ask Steven Katz, a spokesman for TransUnion, the Chicago-based credit giant.
Mr. Fuchs says: I did ask Katz. But he also said that you had to be somewhat careful about inactive cards. Sometimes you have a tiny balance or a fee hits and you ignore the letters because you assume the balance is totally clean. Other times, you are getting statements by email and change providers, so you don’t get notified. Then, guess what? You get hit with a “closed by grantor.”
Mrs. Fuchs says: OK, so I have to be careful to read my statements. But tell them what Katz also said.
Mr. Fuchs says: Do I have to?
Mrs. Fuchs says: Yes.
Mr. Fuchs says: He also said that though opening a store card can itself hurt your credit by making you appear “credit hungry,” actually having cards you don’t use helps your credit. It shows just the opposite—that you are not credit hungry and can, in fact, turn away from temptation.
Mrs. Fuchs says: Well, except for Barney’s…
Mr. Fuchs says: Don’t remind me. So what should we do? I’m a little worried because store cards were always riskier loans and in the current environment, defaults have been higher than on non-branded credit cards. They are likely to be closed down with a greater degree of frequency, but it’s hard to get a bead on when, why and how. Those Sears cards are handled by Citigroup (Stock Quote: C) and a spokesman there wouldn’t even release their policy on closing inactive accounts, because he said it was proprietary. Like the special sauce at McDonald’s (Stock Quote: MCD), I guess. You say that you’ll be diligent in checking, but with three kids and work, we’ve learned about promises of diligence in financial planning.
Mrs. Fuchs says: Yeah, it is not always as easy as it seems.
Mr. Fuchs says: Then again, the advantage of having cards you don’t use assisting your credit report seems silly to give up. Katz said that as long as you are pretty good about checking for the zero balance, just close one inactive card down a year. You’ll eventually rid yourself of the potential headache, while taking advantage of the credit boost along the way.
Mrs. Fuchs says: Sounds like a plan.
Mr. Fuchs says: And how.
Mrs. Fuchs: Now next time, honey? Stay out of my wallet.