Is closing old credit cards bad?

[joflier]

I have 2 or 3 store credit cards that I never use anymore. They all have pretty big limits, and I just don''t want them. But I''ve heard that it''s bad to close credit card accounts. Is that true?

 

[Shoopy]

Depends on your credit to debt ratio.

If you have these 2 store cards with limits totalling $10,000 and one credit card with a limit of $2,000 that has a balance of $1,000 then your credit to debt ratio 8%. If you close out those 2 store cards, it becomes 50%.

I would consider all of the credit cards you have as a factor in deciding whether these 2 store cards will have a negative affect.

ETA: Just as a side note, no one really knows what makes up a credit score but the credit to debt ratio is used a lot by financial institutions in determining whether you are a good candidate for a loan (mortgage, auto, etc.).

 

[D&T]

it depends, if these cards have never had any negative factors and there is a long history behind them it could actually help your credit scores. But if you had some negatives associated with those cards, and its been a while, then it might be a good thing to close it. I've seen these more than a few times so maybe this will help you as well determine if it will help you or not.

Some guidelines on credit score make up (just a guideline- like others have said, its a bit of a mystery as well):

35 percent - An individual's history of making credit payments on time
30 percent - The total amount of debt being carried along with available credit
15 percent - The age of an individual's open credit lines (more history is better)
10 percent - The frequency with which someone applies for new credit
10 percent - Wild card factors such as the types of credit lines

 

[lilyfoot]

If they are your oldest cards, don''t close them.

However, if these are just random cards you''ve accumulated through the years, after your credit was already established, I would close them. I assume you have other credit cards, and hopefully they''re not all store cards?

I do think your score would take a temporary dip, if you close them all at the same time, but it should be very small, and I think it''d be back to normal within 1-3 months.

 

[joflier]

Yes, I do have 2 main cards that aren''t store cards. Although, I''d like to close one of them, being that it''s history isn''t fantastic. But then again, it''s probably my oldest card. Toss up, I suppose.
If something affects my score temporarily, I''m not too concerned. I''m just gearing up for a car loan in about 12-18 months, and I just want to make sure I don''t have any difficulty with that.

 

[Tacori E-ring]

I feel like this stuff changes all the time. Sometimes I hear it is better to close. Sometimes I hear it is better to keep them open. If you have a good score now I would just leave them open.

 

[lilyfoot]

joflier, it's a bit more difficult giving advice without knowing your exact financial situation.

On one hand, if you have too much open credit (or debt), it's looked upon as negative by a new lender. On the other hand, if you don't have enough credit history, it's a negative.

If you're looking at getting an auto loan 12-18 months out, you'd be perfectly safe closing those cards now. However, I wouldn't close them if they're a major part of your credit history, or if you would only be left with 1 or 2 other cards.

ETA: Sorry, should've clarified the above point more. The auto loan amount may depend on the amount of open credit you have, aka, the more open credit you have, the lower the amount you will be approved for. No lender likes to see an individual with "too much" available credit.

 

[karpouzi]

Date: 3/18/2010 4:00:22 PM
Author: joflier
Yes, I do have 2 main cards that aren''t store cards. Although, I''d like to close one of them, being that it''s history isn''t fantastic. But then again, it''s probably my oldest card. Toss up, I suppose.
If something affects my score temporarily, I''m not too concerned. I''m just gearing up for a car loan in about 12-18 months, and I just want to make sure I don''t have any difficulty with that.

Closing the card won''t wipe the negative history from your credit report, unfortunately. I would keep the oldest open and close all the rest unless that would make your utilization ratio quite high, as fiery explained.

 

[lilyfoot]

An alternative to closing them, if you need the credit history, would be to lower the available credit amounts.

 

[D&T]

Per the Credit reporting act, negatives should only stay on for seven years (so that is why it is good to always look through your credit reports yearly and dispute those IF it should have dropped off) unless its other bigger issues, like bankruptcy and tax liens.

 

[karpouzi]

Date: 3/18/2010 4:00:22 PM
Author: joflier
Yes, I do have 2 main cards that aren''t store cards. Although, I''d like to close one of them, being that it''s history isn''t fantastic. But then again, it''s probably my oldest card. Toss up, I suppose.
If something affects my score temporarily, I''m not too concerned. I''m just gearing up for a car loan in about 12-18 months, and I just want to make sure I don''t have any difficulty with that.

I wanted to post again with a PSA because the "probably" signals to me that you may not have looked at your credit report recently?

Are you in the U.S.? If so, you are entitled to a free credit report from each of the three bureaus each year. I would go ahead and order all three of those now at the gov''t web site, annualcreditreport.com. Go over them and make sure the information is accurate. This will give you time to dispute anything that''s not before you apply for the car loan. You might also want to note which accounts are open and close anything you don''t need.

Then, next year at this time, pull the reports again before you apply for the car loan, to make sure there are no surprises.

In fact, if you won''t need to apply for any other credit before the car loan, you might want to put a freeze on your credit. This will prevent anyone from opening an account in your name--you or anyone else. It costs I think $10 per bureau to freeze or to release a freeze (so it''ll be $60 total), but I think it''s free in some states.

 

[joflier]

Date: 3/18/2010 4:24:06 PM
Author: lilyfoot
An alternative to closing them, if you need the credit history, would be to lower the available credit amounts.

That may be a better option. When I was on the phone, I couldn''t believe what the limits were! They weren''t that high when I opened the accounts! Why would I EVER need $2k to spend @ Victorias Secret???

 

[luvmyhalo]

I just saw this on Yahoo...

http://finance.yahoo.com/banking-budgeting/article/109091/new-rules-for-credit-score?mod=bb-creditcards

 

[Dancing Fire]

Date: 3/18/2010 3:12:58 PM
Author:joflier
I have 2 or 3 store credit cards that I never use anymore. They all have pretty big limits, and I just don''t want them. But I''ve heard that it''s bad to close credit card accounts. Is that true?

Citi said...since i never use their CC they''re going to charge me $35 in membership fee

i said...please close my account!!

 

[MagsyMay]

Date: 3/18/2010 5:17:12 PM
Author: luvmyhalo
I just saw this on Yahoo...


http://finance.yahoo.com/banking-budgeting/article/109091/new-rules-for-credit-score?mod=bb-creditcards

I was going to post this too. Interesting info. What what I know, it is generally never very good to close accounts.