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closing credit cards?


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  #1  
April 13th, 2010, 05:04 AM
luvmygirls333's Avatar Super Mommy
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We are in the process of paying down our debt. I figure we should have the cards payed off in 2 years, then will save for 2 yrs so we can buy our first home. We have 2 CCs. We are paying the minimum on #1 and paying down #2. #1 (9.24%) has a limit of 16K and our balance is 14.5K. #2 (18.99%) has a limit of 58K and our balance is 7.5K.

So my question is this...Once we pay off #2, should we close the card or leave it open? Which would be better for our credit score?
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  #2  
April 14th, 2010, 11:16 AM
Lynsann's Avatar Platinum Supermommy
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I have the same question. We just paid off one of our credit cards literally 10 minutes ago and I'm trying to determine what the best thing is to do with it. I know that it doesn't look good to have credit cards with no balance at all because there is the potential to max out a lot of money, but at the same time I've heard that it doesn't look good to close cards either. I'll be waiting patiently with you to see what the other ladies have to say.
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  #3  
April 16th, 2010, 07:15 AM
jenn2350's Avatar Veteran
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I'm in the same position with just paying one off last week and working on the other now. I like having the option of available funds for an absolute emergency until we can bulk up our savings, but at the same time I want to avoid the temptation and close it out. I don't want to hurt my credit though.

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  #4  
April 17th, 2010, 03:01 AM
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Don't close your account. Do put the card in some unusable place or cut it up. You are close to limit on the other one and the credit people see that as maxed out but they also see has paid one and doesn't have to use it. When you close an account your score can actually go down.
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  #5  
April 21st, 2010, 12:51 PM
mommy2Breana+Brandon's Avatar Platinum Supermommy
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I have heard closing the accounts actually hit your score more than having it open and not being used.

So in my opinion I would leave it open but it same where safe and don't use it.
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  #6  
April 21st, 2010, 03:41 PM
sugarloafbaby's Avatar Mega Super Mommy
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Since we don't believe in debt, we closed all our credit card accounts after we paid them off. This might affect our credit score, but I really don't care since we are not planning on borrowing money except possibly for a house (and you don't need a credit score to get a mortgage).

If you're concerned about your score, leave them open, but cut them up. You'll have to stay on top of the CC policies though since there are many companies who are now charging people fees who don't use their cards.
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  #7  
April 22nd, 2010, 07:27 AM
Momofapeanut's Avatar Platinum Supermommy
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That's a tough one!

Is it your oldest account? If it's your oldest cc, I've read that your score is mostly based on this account and you don't want to close it.

I heard this on the news last month, it was quoted as being from Experian:

"4. Use credit wisely
Once you've paid down your debts, continue to use your credit cards and pay the bills on time each month, and keep your balances low. Credit scoring systems not only look at individual credit card balances, they also consider something called your utilization rate (or balance to credit limit ratio). Your utilization rate is the total of the balances on all of your credit cards compared to the total of the credit limits on all of your credit cards. For example, if your credit card's limit is $10,000 and you owe $2,500 - your credit utilization rate is 25 percent. According to Experian, consumers on average are utilizing more of their available credit. At the end of 2009, the average utilization was 22.1 percent compared to the same time last year when average utilization was at 19.1 percent. Closing accounts reduces your available credit, which can increase your utilization ratio or balance-to-limit ratio - a sign of risk that can negatively impact credit scores."


They had also mentioned that you don't want to leave a continuous $0 balance either. They said you should rotate usage. Which I find to be impossible to do.

But I'm not sure which items impact the most!
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  #8  
April 22nd, 2010, 03:37 PM
Lynsann's Avatar Platinum Supermommy
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So, I'm still confused as to what to do. There are positives and negatives to both. Rotating usage on cards sounds like such a hassle and could be dangerous if you're not completely on top of it. I also get really nervous about the credit card laws changing. I also read somewhere that cc companies may start charging fees for credit with a zero balance.

Is the only negative to closing the cards is that it affects your credit score negatively?

I'm tempted to just completely close them all since we don't plan on relying on credit at all anymore either. I didn't know that you didn't need a credit score for a mortgage? That's the only thing from here on out we would use credit for. Hmmm . . . . . . .
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  #9  
April 23rd, 2010, 07:45 PM
JessP's Avatar Lovin life and family
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I have never heard that a credit score won't affect getting a mortgage. I know they pull your credit when you go for a mortgage.
You could check your regulations for the cards if they don't charge a fee for being at zero then just lower the limits on them. Then they aren't closed but there isn't as much available which is another thing they look at is how much you could "potentially" spend.
I have closed cards over the years not knowing it would hurt our credit... and we have never had a problem. We still get credit so I don't think its that hard on your score. That being said alot has changes since I closed them with the market crash and the banks failing. I wish things were more simple .
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  #10  
July 31st, 2010, 01:50 AM
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Quote:
Originally Posted by JessP View Post
I have never heard that a credit score won't affect getting a mortgage. I know they pull your credit when you go for a mortgage.
You could check your regulations for the cards if they don't charge a fee for being at zero then just lower the limits on them. Then they aren't closed but there isn't as much available which is another thing they look at is how much you could "potentially" spend.
I have closed cards over the years not knowing it would hurt our credit... and we have never had a problem. We still get credit so I don't think its that hard on your score. That being said alot has changes since I closed them with the market crash and the banks failing. I wish things were more simple .
Go to Dave Ramsey's site. He recommends banks taht DO NOT use your credit score to give you a mortgage loan as they do their own underwriting. They go off of what you have in the bank. Here's the thing, Dave Ramsey is literally a millionaire yet he wouldn't qualify for a credit card or home loan through many banks due to the fact that he has no credit. So you go with someone that does their own underwriting and uses your financial position (ie you have $50,000 in the bank been with your job for X amount of years make X amount per month yes you can afford the loan) versus your credit score. So THAT'S how you do not need a credit score for a home loan.

To answer the OP's question, yes the only negative to canceling your card is that it will affect your credit score, but by leaving the account open you open yourself up to identity fraud, credit card fraud, problems that could have YEARS worth of backlash over not to mention tons of time and money fixing the problem. Also if you carry a zero balance too long companies may close them off themselves (happened to me on several cards) or charge you fees due to not using them.

This is just my opinion and what we did, but IMO if you are not going to use credit cards anymore (which i would encourage you NOT to do given that you have over $20K in credit card debt) I would tell you to close the accounts (ALL of them) AND cut up the cards and never open another credit card ever again. Build up an emergency fund, 6-12 months worth of bills in the bank, and use cash for everything.

Sorry I know this post is about 3 months old but just found this board so thought I'd respond anyway.
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  #11  
August 31st, 2010, 10:50 AM
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Yeah about the underwriting of a mortgage..yeah well good luck doesnt happen anymore, we investigated it and it would take us 4 x as long as if we went through our bank, and even then only 20% are approved, but yeah Dave Ramsey or DR as I call him says its possible, oh yeah and what he doesnt tell you is that most utilities etc, no longer give out statements for however long you have had that utility. Banks go off the credit score. I have read DR and I apply some of it to my life but then there is some on there that I am like WTH? You need to leave your cards open, closing them hurts your score. I went to a Credit counselor and hes like everyone wants to close their cards but in the end thats just going to hurt you more. I no longer have a car payment so the thing that keeps my credit score up there is credit cards.
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  #12  
August 31st, 2010, 10:55 AM
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Originally Posted by superwoman8977 View Post
Yeah about the underwriting of a mortgage..yeah well good luck doesnt happen anymore, we investigated it and it would take us 4 x as long as if we went through our bank, and even then only 20% are approved, but yeah Dave Ramsey or DR as I call him says its possible, oh yeah and what he doesnt tell you is that most utilities etc, no longer give out statements for however long you have had that utility. Banks go off the credit score. I have read DR and I apply some of it to my life but then there is some on there that I am like WTH? You need to leave your cards open, closing them hurts your score. I went to a Credit counselor and hes like everyone wants to close their cards but in the end thats just going to hurt you more. I no longer have a car payment so the thing that keeps my credit score up there is credit cards.

Funny, we got one just fine...We also have a large amount of cash in the bank. If you cannot PROVE you can handle the mortgage then you're right you're going to have an issue, if you can prove you have $50,000 in the bank, you've had your job for 6, 7, 8 years, that you don't bounce from job to job or aren't laid off all the time, if you can show that you've never been to collections, no bankruptcies, etc then you ABSOLUTELY can get a mortgage through underwriting. If you aren't that credit secure yet then nope you won't...but at the same time it may not be a good idea for you to get a house if you aren't at that point either (depending every situation is different). We have ZERO credit cards (ALL closed) and zero car loans and have a mortgage, get credit card pre-approved crap all of the time, and would have no problem opening a loan if we wanted one (which we don't).

And my electric company will give a written print out of how long we've been with them...I just did it as I needed it about a month ago for an issue.

Dave Ramsey also has a list of banks on his site that do it and do it regularly. Yeah you have to work at it, you have to have the job stability you have to have the money saved in the bank you have to stay out of collections and no bankruptcies...and in this day and age that's hard for a good majority of people, but if like us, you're one of them then you absolutely won't have a problem I guarantee it.

And to add...if you've ever been a victim of any kind of major fraud charges that took you months and hours of your time to deal with or any kind of identity theft you'd probably feel differently. Credit cards CAN hurt you and completely ruin your credit , especially with identity theft and fraud charges on the rise.
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  #13  
September 5th, 2010, 12:25 PM
LoveTheStork's Avatar Regular
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You are doing it right so far. After the card is paid off, keep it because the length of the credit history will keep your FICO score up. Ask for the interest rate to be lowered. Sometimes it will take a several attempts but it will help get the rate lowered. Then just use it once every few months, and pay it off in full at the end of the month. You don't need to put too much on the card when you use it time to time. It will just show activity.
I just noticed the high credit limit you have on that card. Which is another reason to keep that card open. When you apply for new credit the companies pull your credit report. At that time they view it and can see what other companies credit limits have given you, not always do they do this but sometimes they do. Another reason to keep the card is that it helps with the debt ratio in FICO scoring. (It will help keep your FICO score up with a limit that high.)
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  #14  
September 5th, 2010, 03:19 PM
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Originally Posted by LoveTheStork View Post
You are doing it right so far. After the card is paid off, keep it because the length of the credit history will keep your FICO score up. Ask for the interest rate to be lowered. Sometimes it will take a several attempts but it will help get the rate lowered. Then just use it once every few months, and pay it off in full at the end of the month. You don't need to put too much on the card when you use it time to time. It will just show activity.
I just noticed the high credit limit you have on that card. Which is another reason to keep that card open. When you apply for new credit the companies pull your credit report. At that time they view it and can see what other companies credit limits have given you, not always do they do this but sometimes they do. Another reason to keep the card is that it helps with the debt ratio in FICO scoring. (It will help keep your FICO score up with a limit that high.)
And when someone steals the card number and you have $10,000 in debt that isn't yours?

Not to mention, doesn't getting out of debt mean you STAY out of debt so why would one be opening up more credit or taking out more loans to put themselves back into debt? Isn't the whole point to get out, stay out, and make it a "we don't get it unless we have the cash in the bank" policy? In which case you wouldn't care what your credit rating is because you're not taking out credit.

Last edited by SpazTaz; September 5th, 2010 at 03:23 PM.
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  #15  
September 5th, 2010, 04:59 PM
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Quote:
Originally Posted by Mommie2One View Post
And when someone steals the card number and you have $10,000 in debt that isn't yours?

Not to mention, doesn't getting out of debt mean you STAY out of debt so why would one be opening up more credit or taking out more loans to put themselves back into debt? Isn't the whole point to get out, stay out, and make it a "we don't get it unless we have the cash in the bank" policy? In which case you wouldn't care what your credit rating is because you're not taking out credit.
You can put an "Alert" on all credit cards. If you are worried about ID Theft. This would require ID for any and all purchases made. To do this you just notify the credit card companies.

Her question included what would be best for her credit score. Having a high limit on a credit card is fantastic for your credit. It doesn't mean because the card is paid off to go and charge it back up and get back into debt. I was referring to keeping the card active once in a while and paying it in full when there are any charges.

You should always care about your credit rating. It shows you are responsible financially.

Closing accounts which are old (accounts which are 60 months old are valuable) can have a negative impact on your credit score.

Your FICO score is factored by 15% of it being "Length of Credit History" which is
Time since accounts opened;Time since accounts opened, by specific type of account; and Time since account activity.

In her case she has an very high credit limit on card #2, 58K. You would not want to close a card like that. It will help her FICO score.
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Last edited by LoveTheStork; September 5th, 2010 at 05:02 PM.
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  #16  
September 5th, 2010, 05:21 PM
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Originally Posted by LoveTheStork View Post
You can put an "Alert" on all credit cards. If you are worried about ID Theft. This would require ID for any and all purchases made. To do this you just notify the credit card companies.

Her question included what would be best for her credit score. Having a high limit on a credit card is fantastic for your credit. It doesn't mean because the card is paid off to go and charge it back up and get back into debt. I was referring to keeping the card active once in a while and paying it in full when there are any charges.

You should always care about your credit rating. It shows you are responsible financially.

Closing accounts which are old (accounts which are 60 months old are valuable) can have a negative impact on your credit score.

Your FICO score is factored by 15% of it being "Length of Credit History" which is
Time since accounts opened;Time since accounts opened, by specific type of account; and Time since account activity.

In her case she has an very high credit limit on card #2, 58K. You would not want to close a card like that. It will help her FICO score.
Just have to agree to disagree. I think having credit cards makes you irresponsible financially. There's absolutely ZERO point to having a high FICO score if you have ZERO intentions of taking out a loan (which is the way it should be IMO), having credit cards, or going into debt. I think being financially responsible means you have the cash in your hand (or in the bank) when you purchase something...not borrowing money. Being financially responsible means having a savings account, retirement accounts, stocks and bonds, college accounts for children, emergency fund, and at least 6-12 months worth of bills in the bank in cash in case one or both people in the home that bring home paychecks lose their job.

Not sure where along the line someone decided that it was such a great idea for people to have credit cards and set themselves up to borrow money from others their entire life for stuff that makes them live above their means, but I wish we could turn back the hands of time and stop that one from happening...I think this country would be a whole lot better off if people would stop living by the all mighty credit score. Your credit score is pointless if you do not borrow money and don't purchase something unless you have the money to pay for it right then and there...which again, IMO is the way it should be.

I could care less about my credit score, don't even know what it is honestly, nor does it matter because I have no credit cards have no intentions of ever having one ever again, I have no car loans and have no intention of ever having one again, and I am financially secure. Not that difficult to do, just takes some dedication and telling yourself no along the way for a few things.

And the whole ID theft protection on your credit cards does not work for online purchases and rarely works for in store purchases. I had a credit card I had ran up to $17,000 ONLINE (i still had possession of the card as well) took me MONTHS AND MONTHS to get it cleared up and I had to hire a lawyer in order to do so. After that I put an alert on all my cards....NEVER had anyone ask me for ID in a store and as I said doesn't do a single thing for online purchases. Store clerks just don't care and when you rarely show your card anymore just swipe and go it's naive to think that really works (and I'm here to say, having been there done that it doesn't). I now have my credit completely 100% FROZEN (my son's too so nobody steals his SSN) so that nobody can take out a loan or credit card in my name without the credit bureau calling me and me having to authorize it with the phone number and security code I have on file with them. Even at that, I've had a couple of calls over the past 3 years so it absolutely does happen.
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  #17  
September 5th, 2010, 07:13 PM
JessP's Avatar Lovin life and family
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I believe the original poster was asking about credit score and how closing the cards would affect her. I also believe she posted saying she has to take out a traditional mortgage which would require a FICO score. So in this case while it would be lovely to be debt free and have tons of cash on hand to pay for everything including enough for a new home I don't think that is realistic in every situation. Home Ownership with a traditional loan doesn't make you financially irresponsible IMO.
For the OP I hope that you were able to pay down your credit cards and find a solution to your credit question that worked for your family.
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  #18  
September 5th, 2010, 07:19 PM
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No I agree, our first home loan was a traditional loan. It's not impossible to have no credit cards and no car loans (or other loans) and still get a loan for a home is all I am saying.

We had a traditional home loan through Citimortgage (traditional bank) the first time around with a 5% interest rate...no credit cards...it IS possible to do it. We have since done it through underwriting when we refinanced because we wanted to do it that way and it gave us a lower interest rate but our first one was through the traditional way.

My point is too many folks are stuck on a number. Where there's a will there's a way and it IS possible to be debt free (minus a home loan we do have that), no credit cards, and financially secure and still get a home loan. In fact, especially today banks are wanting LESS credit cards and less of credit line on them due to the fact that they're wisening up and realizing that people can rack those up in an instant. Obviously if you have only have one credit card with a $1,000 limit on it you cannot go out and become $20K in debt in 6 months. Banks are becoming smarter after getting burned in this crappy economy so many of the old rules are becoming just that...old.
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