Credit Card Cancelling?

[sterlingice]

Since we have some from all walks of life here, I was wondering if we have some financial gurus who could help on this question.

I'm pondering cancelling some old credit cards- over the past couple of years, I've chewed into my debt and watched my credit score go from the low 600's to mid 700's and I'm thinking of simplifying/cleaning up some of my history. I have some with lower limits than some of my "better" cards and more recent "member since" dates since I opened up a couple to take advantage of low/0 interest balance transfers to help pay off. How will this impact my credit score and is it a good or bad idea?

I've heard conflicting reports from different sources so I'm kindof curious if there's a "correct" answer from someone who knows. I've seen some sources say "keep all of them open, the more credit line, the better". I've also seen quite a few sites debate the "keep them all open because you'll lower your average credit card length" as being both true and not true.

So, is there a reasonably sane answer to all of the above? Is there a good way to get rid of them

Also, as a secondary question- is there a way to get a company to drop their interest rate on a card? Basically, is there a way to call them up and basically say "hey, I haven't used your card in years and I'm never going to use your card again unless you drop that insane rate"? I like the card on my credit rating because it has a high balance and has been around a while but there's no way I'm using anything that has an 18% interest rate even if I never plan on accruing debt again because you just never know what could happen.

SI

[stevew]

I'd ask on creditboards.com. Or if you and the wife are looking to buy a house soon, I would just wait and see what the bank wants you to do.

[Swaggs]

Also, as a secondary question- is there a way to get a company to drop their interest rate on a card? Basically, is there a way to call them up and basically say "hey, I haven't used your card in years and I'm never going to use your card again unless you drop that insane rate"? I like the card on my credit rating because it has a high balance and has been around a while but there's no way I'm using anything that has an 18% interest rate even if I never plan on accruing debt again because you just never know what could happen.

SI

You can absolutely call up your credit card company and request for them to lower your rates. I have done it a number of times over the years. Just let them know that you would be more inclined to use their card if its rate was more competitive with your other cards. Unless your credit is very poor, they will likely give you their best rate.

[Logan]

I'd ask on creditboards.com. Or if you and the wife are looking to buy a house soon, I would just wait and see what the bank wants you to do.

Yeah, if you have no major purchases on the horizon, I would go ahead and cancel a couple of those cards. Any impact that has will be temporary, and by the time you're ready to buy a house/car/whatever, you'll have spent enough time in your new little credit universe.

Of course, if you are thinking about buying something soon...less activity is probably better.

Re: lowering your rates...I've been able to do that before. One of the cards I used during college had a sky-high rate (it was one of those "apply for a card, get a free shirt" deals that prey on college kids...it was a great shirt), but it got me some decent rewards so I kept it for my smaller purchases that I paid off every month. When I started working I called them up and asked if I could increase my limit substantially and also lower my rate, because otherwise I would be canceling. They did both in about 30 seconds.

[chrisj]

From what I've been told (girlfriend works in a bank, so take that for what it's worth): having a lot of credit with no balances on them is generally not a good idea.

The theory as she has been told - Lets assume you have no debt and you apply for a mortgage. The bank sees that you have no debt - but a lot of credit available to you. Lets say they approve you for $250,000 - how do they know that you won't run out and rack up $30,000 of debt the next day (meaning they should have only approved you for $220,000). Make sense?

[Vinatieri for Prez]

I think if your recent (perhaps a year or more) credit history shows the balances have remained at zero so you have a history of not racking up credit purchases, this would cancel that out, no?

[stevew]

Personally, if you have any by the same issuer(ie Citibank and/or Chase) I would try to merge them. I'd also either get the high interest ones reduced, or probably would consider closing them, assuming that they are not your oldest/highest balance card. If you aren't planning on buying a house or car soon, then I would probably take care of doing it as soon as you can, that way any effect would be mitigated. But be aware that your score could be adversely effected.

[JeeberD]

The wife and I went to a First Time Homebuyers seminar a couple of weeks ago, and when talking about credit rating, they said that it doesn't make sense to cancel cards that you aren't using. First off, the higher your total credit limit is, the better it is for your credit because you don't want your total balance to be over 50% of your total limit. So say you have four cards with a $1000 limit, but you only have $300 on each of them, that's much better than canceling two of them and transfering the balance to the other two and having $600 on each $1000 card.

I know that's not really your situation, but having them open really can't hurt your credit (in my understanding), and if you make minor purchases on each of them (gas, small meals, etc) and then pay them off each month it can help your credit and make it easier on y'all when you're ready to buy a home.

[st.cronin]

When my gf and I bought our house, we found we got much better mortgage rates after canceling all our credit cards. So, that's my experience.

[Mustang]

I think if your recent (perhaps a year or more) credit history shows the balances have remained at zero so you have a history of not racking up credit purchases, this would cancel that out, no?

No.

You still have all of that available credit so, while you may not be using it, the potential is there to use it so, it is seen as a negative.

[FrogMan]

When my gf and I bought our house, we found we got much better mortgage rates after canceling all our credit cards. So, that's my experience.


that'd be my thought too, keep the cards for now but the minute you want to borrow a big amount, offer the lenders the fact that you are willing to cancel them out. It can be viewed as a sign that you are serious and such...

When we refinanced our house about a year ago, we changed bank and decided to cancel out a bunch of unused credit cards. We got a good mortgage rate in the process too...

FM

[JediKooter]

Don't do it. You will hurt yourself more than help yourself. If you're not going to use the credit cards, just put them away somewhere and use them once every couple of months to buy a tank of gas or something, so they remain active.

It's a complete fallacy of this thing called "Too much credit".

I suggest you go to creditboards.com before making the horrible mistake of canceling some of your credit cards.

No offense to anyone that posted in this thread, but, here's lots of horrible advice in this thread. Do yourself a favor and check out the creditboards site. They aren't rookies and a lot of the people work in the finance industry.

I would post the very same question that you originally did here and post at creditboards. The main thing to keep in mind, is everyone's situation is different. Spend a couple of days reading on that site before making your decision, is the best advice I can give.

[sterlingice]

So, in short, I got about as varied a response on here as anywhere. ;)

Maybe it's time to checkout this crediboards.com

SI

[JediKooter]

So, in short, I got about as varied a response on here as anywhere. ;)

Maybe it's time to checkout this crediboards.com

SI

The main problem is sorting the myths from the truths and myths are more prevalent than the truths when it comes to credit and credit repair.

I am in no way affiliated with creditboards, but, from posting and asking questions, I have learned a lot and have been successful with the information that I got from there. As with any site, you do have to watch out for the idiots.

[jbergey22]

As a prior mortgage loan officer and financial advisor my best advice would be to cancel them if you are not using them. Open credit lines does not help your credit if it is never used plus the fact that you will likely get better rates down the road if these cards are shown closed. A scenario like yours where your credit seems just fine as is I would see no advantage to keeping it open. If you were in the mid 650's I might recommend using the cards and paying them back right away but for a 700+ an open credit doesnt provide any help. Closed credit is what will help you. Hope this helps!

Here's an easy formula to help you out.

Take your total monthly income and divide your monthly mortgage/rent, car payment and then minimum payments on any other loans or cc's you make monthly payments on. This needs to be around 35% or less for a lender to give you the best possible rates. Some institutions depending of course on credit will assume minumum payments on these open credit lines and tack that on in this formula. If you are no where near 35% and have the credit you have you really dont have to worry about much as your credit will be fine either way. Too much open credit CAN eventually hurt you however.

[Klinglerware]

If that is the case, should I have a credit card at all? I'm getting along fine with just a debit and charge cards (i.e. the type you have to pay off right away), so now I wonder if having a credit card for emergencies is even worth it...

[JediKooter]

There is no such thing as too much credit. There is such a thing as too much debt. Two completely different things. What would help more down the line is having open credit lines that show that they are paid for on time, every time, as opposed to showing them as closed.

From my personal experiences and from talking to others, if you have 700+ scores and great payment history, not many lenders (except maybe a sub prime lender or smaller financial institution) are going to think that having a lot of credit cards open is a negative factor. Keep your utilization below 30% and don't open up or CLOSE any accounts before a major purchase that requires a new line of credit to be opened, i.e., a house.

There are 5 main items that are factored into your FICO score: Payment History, Amounts Owed, Length of Credit History, New Credit, and Types of Credit Used. From myFICO.com "Don't close unused credit cards as a short-term strategy to raise your score." Source:http://www.myfico.com/CreditEducation/ImproveYourScore.aspx

I highly recommend signing up to creditboards.com and do a search on "too much credit". :)

My best advice to sterlingice, is read as much info as you can, review your own financial situation and long term goals and determine what works best for you. But, with the information that you gave, closing them will do zero for you, in fact, if they have some significant age to them along with good payment histories, it will probably affect your scores in a negative way.

[14ers]

The main problem is sorting the myths from the truths and myths are more prevalent than the truths when it comes to credit and credit repair.

"need more input"

Who are you? IF you are a kid that has only been out of college a few years then a good credit card history matters. If you are a seasoned Vet with previous home loans and paid off car loans in your history, then your little credit card history is really not going to matter.

This is why you are getting confusing information. You are comparing advice given to a Rookie with advice give to a seasoned veteran. Who are you?

[JediKooter]

"need more input"

Who are you? IF you are a kid that has only been out of college a few years then a good credit card history matters. If you are a seasoned Vet with previous home loans and paid off car loans in your history, then your little credit card history is really not going to matter. It's not going to matter in regards to what though?

This is why you are getting confusing information. You are comparing advice given to a Rookie with advice give to a seasoned veteran. Who are you?

Whether or not you have an established credit history or a new credit history, having different types of credit and paying on time is one of the factors that can help raise your credit score and the factors that raise or lower your scores are no different for an 18 year old or a 50 year old.

There's people out there that are anti credit or have no use for credit, which is fine and that may work for their specific situation, but, there is nothing wrong with having credit, credit cards, personal lines of credit, etc, as long as you use it responsibly.

If you want to try and get the highest credit score, as FICO stated, it helps to have various types of credit, as in, revolving credit (credit cards, store cards, gas station cards) or installment credit (car loans, house payments, personal loans) and have little to no (hopefully no) late payments. There is no 'one' way to guarantee the highest credit score, the FICO model is too complex and the fact that everyone's situation is different. However, there are specific things that one can do to help push their scores to the higher end of the scoring scale.

I think it's only confusing to him because there is so much information available (good and bad) and it does take time to read it all and understand what it all means and then decipher what the good info is and what the bad info is. In the end though, it's going to boil down to what he is trying to accomplish and what's best for him.

Edited to add: I apologize to sterlingice for hijacking his thread.

[st.cronin]

there is nothing wrong with having credit, credit cards, personal lines of credit, etc, as long as you use it responsibly.


This has clearly proven not to be the case in my own life, as I said. I saved thousands of dollars by cancelling my credit cards when applying for a mortgage.

[JediKooter]

This has clearly proven not to be the case in my own life, as I said. I saved thousands of dollars by cancelling my credit cards when applying for a mortgage.

I believe you, but, there's plenty of lenders who's under writing standards who don't ask that of their potential customer. I have heard of people who have been requested to close credit card accounts by sub prime lenders.

I'm sure there are some non sub prime lenders that have the same under writing standards, but, I have yet to speak to or know anyone that has done business with one. They've either taken their money elsewhere or the lender didn't have that requirement and it was never an issue.

It's unfortunate that they requested you to do that, I personally would have went somewhere else for the mortgage. But, the key is in your situation, you got what you wanted and that was your house and closing those credit cards was acceptable to you. :)

But, as far as sterlingice's question goes, merely closing unused credit cards will more than likely do zero for his credit score.

[jbergey22]

I believe you, but, there's plenty of lenders who's under writing standards who don't ask that of their potential customer. I have heard of people who have been requested to close credit card accounts by sub prime lenders.

I'm sure there are some non sub prime lenders that have the same under writing standards, but, I have yet to speak to or know anyone that has done business with one. They've either taken their money elsewhere or the lender didn't have that requirement and it was never an issue.

It's unfortunate that they requested you to do that, I personally would have went somewhere else for the mortgage. But, the key is in your situation, you got what you wanted and that was your house and closing those credit cards was acceptable to you. :)

But, as far as sterlingice's question goes, merely closing unused credit cards will more than likely do zero for his credit score.

I had a much easier time getting loans approved via Fannie Mae when the credit lines were closed. When deciding whether or not to approve or deny a questionable loan I always asked myself why does this person have all this open credit. Usually there was never a good enough reason as to why and initial loan denied. I repeat unused open credit will only hurt your score never help it. Frankly, I dont see the point in having an excess of open credit, if your credit is good enough you can just re-apply when you may need it and get better rates w/o all this OTHER open credit showing up on your credit report.

BTW, If anyone out there is looking to rebuild their credit a great way to do that is to take out a CD or two. Take out a loan from the same bank, use the CD as collateral and borrow against it. The bank will probably charge around a half a percent a year to do this type of thing. Its worth it IMO to rebuild your credit.

[JediKooter]

I had a much easier time getting loans approved via Fannie Mae when the credit lines were closed. When deciding whether or not to approve or deny a questionable loan I always asked myself why does this person have all this open credit. Usually there was never a good enough reason as to why and initial loan denied. I repeat unused open credit will only hurt your score never help it. Frankly, I dont see the point in having an excess of open credit, if your credit is good enough you can just re-apply when you may need it and get better rates w/o all this OTHER open credit showing up on your credit report.

BTW, If anyone out there is looking to rebuild their credit a great way to do that is to take out a CD or two. Take out a loan from the same bank, use the CD as collateral and borrow against it. The bank will probably charge around a half a percent a year to do this type of thing. Its worth it IMO to rebuild your credit.

What may be questionable to you and the particular servicing organization you work for may not be questionable for another under writer/organization. Fannie Mae allows for up to $5K in debt that is in collections, other places want to see zero dollars in collections. So, when it comes to under writing, there is no one set way of getting someone a loan for a mortgage.

Having unused credit cards will not typically raise your FICO score, if that's what you mean by never help. So, in that way, I agree with you.

I totally agree, CDs are definitely a good way to help rebuild your credit.

Not knowing what sterlingice's credit situation is (and I don't expect him to share, as it's none of my business), and based on the way his question was asked, coupled with the research I have done over the years, plus personal/friends/family experiences, I do not believe that closing his cards will help his FICO credit scores.

With that, I am done, as this seems to be a rather touchy subject with people and I respect everyone's view of it, even if I don't agree with them. All I can suggest is for people to do the research and form their own conclusions. If anyone has questions for me, please PM me, as this is sterlingice's thread.

Good luck! :)

[CU Tiger]

Here is the problem.
There are 2 distinct different and opposite answers.
It depends on you lender (or proposed lender)

If the lender you are looking at uses only a FICO score then closing accounts WILL hurt your FICO, no ifs ands or butts about it.

However if you deal with a lender who actually has a brain and does manual underwriting, closed accounts will help you.

Unfortunately, in the computer and cheap labor age, it is much easier for a mega-conglomerate bank to hire a $7/hour monkey and tell him:
FICO>700 = GOOD
FICO<700 = BAD

GOOD = YES TO LOAN
BAD = NO TO LOAN

As a matter of personal belief I will not do business with anyone who refuses to actually put effort into earning my business.

Oh and a reference to my basis on commenting. I serve as a financial advisor to many people in my community, and me and my wife counsel with ~ 100 families per year (for the last 5+) about getting out of debt. Many of the times I end up on the phone or in person with their creditors helping them resolve these issues. I can personally speak from talking to AT LEAST 200 loan officers in the past 5 years.

[CU Tiger]

Dola

The reason that the FICO score frowns on closed accounts. Look at who started FICO and who they are still subsidized by.

Banks

Closing accounts takes business away from the credit card companies.

It is in my opinion a corrupt situation where one organization has been given the autonomy to "force" you to do business with their financial backers.

[st.cronin]

/agree completely with CU Tiger, as that's been my personal experience

[Grammaticus]

Just cancel the revolving credit if you don’t need it and are not using it. In the long run it is more likely to hurt you than help you. The best thing you can do is get into a position where you NEVER use revolving credit cards without paying the full balance each month.

Your credit score is modeled by a company called Fair, Isaac and Co., hence the name FICO score. The following factors are used with the first bearing the most weight on down:

Payment History – The more recent you have a delinquent payment the more it negatively affects the score. For example, a 30 day late payment last month impacts your score greater than a bankruptcy five years ago.

Outstanding Debt – If the amount you owe is close to your credit limit, it hurts the score. I suppose a low balance on two cards is better than a high balance on one. But that is a very short term strategy and more cards increases the chances that you use them and accrue debt. If you don’t carry a balance, one or two cards is golden.

Length of Credit History – If you are Eighteen and have one or two credit cards that hurts. Five or six years of good credit is great. Accounts open for a longer period of time are good too.

Recent Inquiries on your Credit Report – If a lot of people are pulling your report, you are obviously shopping for credit. Although a promotional inquiry does not count.

Type of Credit – Loans from a bank are better than from a finance company. This should not be a big impact unless you have little credit or not much to go on above.

It is really not rocket science. I have managed an underwriting team at a merchant acquiring credit card company and most high credit scores equal people who do not have late payments / delinquencies, do not carry balances on revolving credit, have a mortgage and have several years of credit history.

[CU Tiger]

not to drag this back from the dead, buuuut.

One last thing to look at.
I was an underwriting manager for a company at one time, I once heard a phrase at a seminar that really changed my perspective on how thses things are looked at.

A low credit score does not necessarily indicate an inability to pay your debts, it DOES indiacte a willingness to not pay them.

Just food for thought

[Toddiec]

I don't know how I missed this thread the first time around, but here are my two cents. I am a mortgage officer at a community bank and CU Tiger's comments are very accurate. Every bank usually has different qualifying criteria that they base their lending decisions on. You have the banks that go strictly off credit scores and if you have a score greater than "x" you are good to go. Other banks don't use credit scores and tend to look at the actual history on your accounts (that is what we do). We take a look at late pays, minimum payments, etc and use the formula stated above ((loan minimum payments+credit card minimum payments) / monthly net income < 36% = Good).

So, my recommendation would be to talk to your bank (or associated lending institution). If you do business with a certain institution and would theoretically look at them to borrow money (house, car, etc) then just go in and sit down with a loan officer/finance person and ask them what they would recommend. That way you will know exactly what your theoreticaly #1 lending choice requires and you can do what is necessary to look more qualified in THEIR eyes.

Personally I would close them, but I just don't like worrying about them so take that advice for what it is worth.

Hopefully this helps you out SI.

[Vinatieri for Prez]

Following on this, then, if you wait until you go in for your mortgage, couldn't you just ask your bank what they would like you to do? So, if you keep the cards open for now, and then later you say "hey, do you want me to close them." Wouldn't this work for those that are wary of "available credit." Or is that too naive? I guess I am asking if there is a difference in going in now (say a year before you buy a house) or waiting until closer to buying time.

[Toddiec]

That is a very valid point. That would be one of my questions when I went in to talk to them. Would it be better to close them now or when I apply or does it matter or should I not close them at all, etc. I guess my overall point is that it would answer all of the questions that SI would have so he would know exactly what he would have to do to maximize his chances with that institution.

[Kodos]

Ran across a related article:

hxxp://www.marketwatch.com/News/Story/Story.aspx?guid=%7B7BAE44E3%2D7544%2D4219%2D89FE%2D8970F62636B6%7D&siteid=myyahoo&dist=myyahoo

MARSHALL LOEB'S DAILY MONEY TIP

Canceling a card does not help your credit score

By Marshall Loeb, MarketWatch

NEW YORK (MarketWatch) -- Is your credit score, that three-digit number that purports to measure the health of your credit history, not as high as you'd like it to be? If your credit-card spending is out of control, you may be tempted to cancel some of your cards so that you can elevate your score. But simply cutting up the card the old-fashioned way, rather than canceling it, may be the better way to go.

According to Bankrate.com, canceling your credit card probably won't help your credit score. In fact, it could really hurt it. Here's why:

If you cancel a card, your "credit-utilization ratio" is altered. Say you have five open credit-card accounts that add up to a total available credit line of $50,000. Your total outstanding balance on all five cards combined is $10,000. Thus, your credit-utilization ratio is 20%. But if you cancel two of those cards, bringing your total available credit line down to $25,000, the ratio jumps up to 40%. And that can make your credit score go down.

Bankrate.com also warns against canceling an old card. You build up a payment history on old cards, so if you cancel one you've had for a while, you're only trimming the length of your credit history. This can be especially damaging if the old card was one on which you made regular payments.

The best bet, of course, is to simply pay off your cards. Unless you're paying fees to keep an account open, it's good enough to pay down the balance -- and cut that card up.

Marshall Loeb, former editor of Fortune, Money, and The Columbia Journalism Review, writes "Your Dollars" exclusively for MarketWatch.

[Ksyrup]

That article completely discounts the real concern of credit card fraud by having extra accounts open that you seemingly don't even remember because you've cut up the cards but the accounts remain open. One of the main reasons I close accounts is to keep track of what is open.

the other thing is...I don't understand what the importance of that ratio is. If I've only got $25K that I can charge and I've charged, say, 50% of it, isn't it better that I'm limited to another $12,500, instead of having an extra 2 or 3 open cards and an additional $10-15K of credit at my disposal on top of that? I assume there are stats that support the low credit ratio, but it seems counter-intuitive to me, in terms of the increased opportunity to charge thousands of more dollars on the open accounts.