I have three Visa cards. One I use for EVERYTHING and pay off every month. It is the only credit card of any kind that I use. The other two are from days gone by and I haven’t used either of them in 8-10 years. Neither one has an annual fee. My house and car are paid for. I have excellent credit. I have good health insurance. I’m semi-retired. Will it do irreparable harm to my Permanent Financial Record Card if I close out these two unused accounts? They have a LOT of credit available on them (~$12,000) each, so I’ve always thought that if I had an emergency and needed to buy a car or small plane* right now* to escape from a war-torn country and save someone’s life, I could do it… but is that likely?
What is the ripple effect (if any) of closing out credit cards?
People ask this question so often it’s insane. However the basic fact is for most situations it is never to your benefit to close a credit card, the ways it can hurt your credit:
It increases your utilization rate. Say you have $400 on one credit card and you have three cards with $15,000 of total credit available. If you close 2 of the 3 cards the % of your available credit that you are utilizing goes up, which lowers your credit score.
Average account age is another factor in your credit score. Closing credit cards can lower average account age which lowers your credit score.
It looks good if you’ve had a credit card for many years and have no late payments on record, that’s a long history of making payments on time which is important to creditors, closing your credit will cause that payment history to eventually disappear from your credit record.
The only time I can imagine it’s a good idea to close a credit card is if you signed up for a card with a high annual fee and that you don’t use enough to justify the annual fee. Then it might be worthwhile to close that card even though it may hurt your credit score your credit score improves literally every month so that’s temporary and it permanently gets you out of the annual fee.
Closing them would greatly reduce your “credit utilization ratio”: the ratio of the amount of credit to actual balances, which could lower your credit score. If you must, keep the oldest one and close the other one. Closing them could erase the good credit history you have associated with those cards (eventually, after 8 - 10 years or however long each credit bureau keeps closed accounts on your record). Keeping them open keeps that good history on your record for as long as the account remains open.
And you should use them from time to time, if even just for something small.
You should call up/check online to make sure the old cards are indeed valid. Could be embarassing in the store. Also be sure the contact information (addresses, phone numbers, email, billing address, …) are up-to-date before using.
I have no advice for ThelmaLou, but I find these threads fascinating because the system in the Netherlands is so different. The concept of a personal credit is unknown here. People use debit cards for payment, and borrowing money from a bank for anything else then a mortgage or a business investment is considered not done in our culture.
I remember, that as a student VISA sent me a creditcard offer and I assumed they had made a mistake. because I wasn’t rich and only rich people used credit cards. Like most Dutch people, I only got a credit card a couple years ago to use for internet buying and travel abroad.
That has its pluses and minuses. Having been stationed in Europe for many years I felt like I lived really well there because I had cash (but my “actual income” was low by American standards since I was in the military), and Europe is a very “cash poor” society. Not poor at all, but “cash poor.” People just didn’t seem to be able to buy stuff like they do in America, and lack of ready personal credit is a big part of it.
Visa credit cards I’ve had, in fact all credit cards I’ve had, have expiration dates (just a few years after issuance), and a new one is sent before the old one expires. Discover keeps sending me credit cards but I never telephone to verify, as I don’t use Discover. I called them once about that and was told that they are automatically verified if I don’t call.
I realize that I may be a minority opinion here. I don’t believe in carrying extra credit that I don’t use just because it might give me a higher theoretical limit I never intend to use anyway. I would uncomplicate my live and official cancel them. But that’s just me. I have great credit and don’t need any!
www.creditkarma.com is a free, legit website that will explain details about your credit report and how your credit score will be affected by any changes to your accounts. You can run simulations to see effects of specific changes.
Credit Karma is totally free, with no hidden fees and no credit card required for sign up. Last 4 of SSN is required at sign up (not stored) in order to fetch your free credit report from TransUnion.
DCnDC:
“And you should use them from time to time, if even just for something small.”
smithsb:
“And as above, use once/twice a year.”
If one does not use a card, can the issuer cancel it after a period of non-use? Or is this prohibited by recently passed federal consumer-protection laws?
If such cancellation is prohibited, what’s the advantage in using it occasionally if one doesn’t need to?
For the advantages of occasional use, see the points in post #3. The OP has three VISA cards; I’d actually recommend a variety including a Discover Card and MasterCard.
Regarding the consumer protection act, I’ve got nothing but lots of small type “disclaimers” from the various companies that I haven’t read.
This particular aspect is frequently misunderstood. When you close a credit card account, it does not (at least, not immediately) stop counting toward your average account age, because it will still show on your report for 7-10 years afterwards (depending on whether there were any late payments or not), and will still count towards the average age of your credit accounts. Cite.
However, you (and others) are correct about it increasing your total utilization, which is a bigger factor anyway. Though, if you do close it, and you ask for a credit limit increase on your other credit line(s), you could mitigate or eliminate this hit.
In fact, having personal credit is pretty much a requirement here for practical purposes that might seem ridiculous. People actually apply for credit that they don’t really need because what they really need is a good credit history. Credit reports factor into all sorts of stuff. There are nightmare stories about people who try to live on cash only, never buy anything on credit, drive junker cars into the ground and then buy another for cash, and then they try to rent an apartment at a building that requires a credit check, and then they find that they are literally an untrusted nobody who can’t even get an apartment (or cell phone, or rental car) because they don’t have a satisfactory history of credit use.
The primary reason you want to keep unused cards active is that after six months or so, active but unused cards are no longer factored into your FICO score. (But they still count towards your utilization ratio.)
As I posted previously, Discover continually sends me credit cards which, not only do I not use, but never validate them. Discover says they are automatically validated.
Mama Zappa:
“They can indeed cancel it for nonuse, we have gotten notifications like this on our less-used cards.”
friedo:
“The primary reason you want to keep unused cards active is that after six months or so, active but unused cards are no longer factored into your FICO score. (But they still count towards your utilization ratio.)”
barbitu8:
“As I posted previously, Discover continually sends me credit cards which, not only do I not use, but never validate them. Discover says they are automatically validated.”
Thanks for this info.
The reason I asked: After an awful experience with Discover a few years ago [not involving late paymt, exceeding credit limit, or other “bad” behavior], I decided to use Discover only for an emergency. In my ignorance, I’d considered flushing Discover, just to be rid of those scumbags, but kept it. I’ve been using a credit-union-issued Visa [only other card] for everything.
However: Per this thread, yesterday I used Discover and will do so periodically. It’d be dumb to risk blowing my 15-year credit history with Discover, merely because they’re a rock-bottom sleazy outfit.
And like barbitu8, I’ve been receiving unnecessary new Discover cards continually, long before current card’s expiration date.
