Greetings dopers. I have an Amex card that I haven’t used in many years. Today I got a letter from them saying they will close the account, which is fine by me; however they also say that if they do, it could affect my credit rating. But, they don’t say how. Adversely? Or do they just want me to start using it again?
Thanks!
Depends on a whole host of other factors like how much credit you have, how much you owe, the average age of your account etc.
If you’ve had that card for a good long while and your credit is generally good, I’d hang on to it. Just use it here and there and pay it off right away.
In general closing a credit account (and more, one that you don’t owe anything on) is more likely to cause your score to go down rather than up. But that’s very general statement.
If I have no need to borrow money, why would I be concerned about my credit score!
The number of open accounts you have on your credit mildly affects your credit score, with more being positive, because you’re viewed as a more known entity compared to someone who has zero or few open accounts. It’s unlikely to have a big effect, but it could drop it a few points if it’s one of only a few (I think less than 5) open accounts you have.
That could very well be true for the number of accounts you have, but there’s still other factors to consider.
For example, if the OP has a Mastercard with a $10,000 limit and a $5000 balance, a Visa card with a $5000 limit and a $1000 balance and this Amex with a $5000 limit and zero balance. Closing out the Amex card would change his debt to credit ratio from 30% to 40%. A higher debt to credit ratio can (not will, but can) make it harder to get, say, a car loan or mortgage.
If you have no need to borrow money, you wouldn’t have any credit cards. If you don’t have or plan to get any credit cards and your intention, for the foreseeable future, is to make ALL purchases (cars, houses, apartment leases) in full, upfront, in cash/check, then no, you don’t need to worry about a credit score.
There can be other issues, for example, some insurance companies in some states use your credit score, in part, to set your premiums. I’ve also heard of some jobs where your credit score can come into play.
But again, if none of that is going to be an issue in your life, then no, you really don’t need to be all that concerned about it.
Also, having said that, if you are able to live your life without ever borrowing money, your credit score is probably pretty good, especially if your utilities report to them.
That’s not true. I pay for almost everything with a credit card (nowadays without even using a card, just by tapping my phone) because it’s easier. Every bill is paid in full every month, I have never paid even a penny in late fees or interest. I have no need to borrow money.
You’re still using credit, since someone else (your bank) is paying the store you use the cards at. You’re just taking advantage of their lenient credit terms. Hey, I do the same.
BTW, it’s not necessary to have multiple credit cards to have a good credit rating. I’ve only had one credit account in my entire life and my credit score is significantly above 800. It helps a lot to have a high score for things that don’t involve borrowing money. For example, when renting apartments.
I have three credit cards and pay them all down on the due dates each month. One gives me air miles, one is used for all my car-related purchases and I only use the other one a few times a year just to keep it current. In more normal times we travel a fair amount and I like the security of having 20 or 30k of credit available.
Of course, I realise that this is debt, but it is free to me. I see a lot of adverts for Experian etc who want me to subscribe to get my credit score.
The average age of of credit accounts affects your score. If you’ve had this card for a really long time, getting rid of it could drop your score, depending on the age of your other accounts. I’d probably keep the card if I were you. I still keep a Target Red Card MasterCard active simply because I’ve had it since like 1997. It’s kind of a pain in the ass, because every 12 months they send me a letter saying I have to use it or they will close the account after 14 months of inactivity. None of my other unused cards do that.
For better or worse, your credit rating is used for more than just determining your interest rates on loans. So even if you’re not borrowing money, it might affect you. Landlords might check it before making a decision on renting to you. Maybe you own your own home, but there are vacation rentals and other short & long term rentals you might find yourself using. Utility and communication services might require a deposit if your credit sucks. Government agencies and employers or potential employers may check your score and use it to make decisions about you.
What sort of drop are we talking about, and for how long? If someone has good credit and no pressing need to borrow more money, a moderate drop in credit score for 6 months may be preferable to keeping up with an account you don’t use or want for decades.
There ARE credit cards that give you “points back” towards a lower bill, or free purchases on Amazon.
Pay em off monthly, & you get free money/free stuff!
Some have zero annual fees.
Shop around.
My point was that if you have no need to borrow money you can let your credit score tank if you want to.
But you have to keep in mind that using a credit card, whether you pay it off by the due date or even pay each charge the same day it shows up online, you’re still borrowing money and you’ll need to maintain a decent credit score if you intend to continue doing so.
In other words, just because you have no need to borrow money, you’re still borrowing money. Someone else paid for your goods and services until you paid them back. You don’t have to accrue interest for it to be borrowing.
That’s one of the things I was attempting to bring up earlier. If you want to rent an apartment and have bad (or no) credit and don’t want someone to cosign, your landlord may either require you to go month to month paying upfront for each month (or week, in some cases) or paying the entire year of rent + security deposit up front.
Back towards the OP …
All of this is also a matter of scale.
If you’re in the lower SESes, a couple credit cards with small or zero balances is much better than zero credit cards, but 10 cards is (WAG) a bunch too many.
You’re a {whatever} making $900K per year with 4 leased cars, a boat, and high 6-figure mortgages on two houses? 10 credit cards with balances is fine but (WAG) 30 might put a slight dent in your score.
Age matters too. The impact of closing (or opening) a card for a 20- or 23- yo is different than for a 40-, 60-, or 70-yo.
Amex used to be famous for giving cards (with a fee) to kids just out of high school or into college as a way of “building credit”. If that was you we know you’re at least 30-something, so should be past the “building credit” stage of your life. Net of crises, bankruptcies, etc., that may have happened in the interim.