Should I close my credit card account

genchan · #1 (**permalink**) 08-23-2004, 07:10 PM

I have an overall good credit rating and haven't missed any payments that I can remember. I do have one card that has about $500 on it. I have another card with a $5,000 limit that I haven't used in about a year with no outstanding balance on it. Should I cancel this card? Will canceling help my credit rating or will it hurt it?

jeffrey · #2 (**permalink**) 08-24-2004, 12:21 AM

Quote:

Originally Posted by genchan

I have an overall good credit rating and haven't missed any payments that I can remember. I do have one card that has about $500 on it. I have another card with a $5,000 limit that I haven't used in about a year with no outstanding balance on it. Should I cancel this card? Will canceling help my credit rating or will it hurt it?

Keeping your credit card will not hurt your credit and closing the account might actually hurt your credit a bit. I guess the main thing you need to ask yourself is why you would be closing the account. If there is a fee involved with the card and you're not using it, then it makes sense to close it out. If there is no annual fee, then there really isn't a reason to close it.

terry1156 · #3 (**permalink**) 08-26-2004, 05:27 AM

Unless you have a specific reason to cancel the card, you are better off leaving it tucked in the back of a desk.

jmjj215 · #4 (**permalink**) 09-05-2004, 10:40 AM

I would get rid of all of your credit cards and close the accounts.

As far as your credit score goes, the only reason you need a credit score is to borrow money. And the only reason you borrow money is for a modest home. And if you go to a manual underwriter then you don't need a credit score. You just need to show that you're not buying too much house, you've got a good down payment, a solid job, and you paid your rent on time for the last two or three years. No credit score necessary.

I think the whole "build credit" thing is a myth fed to us when we're young to get us used to buying things with other people's money. Any bank worth its salt will manually take a look at your financial situation and loan you money for a house.

Those are my 2 cents.

terry1156 · #5 (**permalink**) 09-05-2004, 05:16 PM

Quote:

Originally Posted by jmjj215

As far as your credit score goes, the only reason you need a credit score is to borrow money. And the only reason you borrow money is for a modest home. And if you go to a manual underwriter then you don't need a credit score. You just need to show that you're not buying too much house, you've got a good down payment, a solid job, and you paid your rent on time for the last two or three years. No credit score necessary.

Welcome to the site...but you're wrong on this one. Credit scores are now used by employers, when you want to rent an apartment, and the list continues to grow year by year. It isn't simply for a house anymore.

I would not advise closing all your credit card accounts. Pay them off, but don't close them - especially the one that you have ahd the longest.

Your plan seems nice and simple, but doesn't mesh with the reality of today.

jmjj215 · #6 (**permalink**) 09-05-2004, 09:39 PM

Granted, I haven't bought a house with this plan. But if you check out a standard fannie mae type of mortgage you'll find that you will get the loan given the facts I mentioned above. It's just manual underwriting. Places don't do manual a lot, which deters people from thinking it's possible to get a loan - but there are places that do it.

As far as for landlords? I've never had a credit check done by a landlord and I've had quite a few of them. Either that's a new development or you found a special landlord. I don't live in a big city - so is that something that landlords in the big city do? Don't you think you'd have a landlord convinced you could pay rent if you provided a letter from your previous landlord saying you had payed on time for the past year? And don't you think the landlord would let you rent if you showed him your personal financial statement? If the landlord didn't let you rent then, then they're just missing an opportunity to have a good renter!

The only reason you need a credit score is to go into debt for things other than a home - I stand by what I said - but look forward to being enlightened at any time!

My one question, what would the employer do if you had no credit score? Is that a bad thing? Why? Because you don't borrow money? I just don't see the logic behind it (and maybe there is no logic behind it?).

2moretrees · #7 (**permalink**) 09-05-2004, 11:28 PM

My roomate was denied an apartment due to a bad credit score. They basically said that she was too much of a risk and they didn't think she would pay. She was also denied jobs due to the credit score. It can come back to haunt you in a lot of ways you never imagined.

terry1156 · #8 (**permalink**) 09-06-2004, 02:02 AM

Quote:

Originally Posted by jmjj215

The only reason you need a credit score is to go into debt for things other than a home - I stand by what I said - but look forward to being enlightened at any time!

Credit reports are also used by Insurance companies to determine premiums or deny coverage which has nothing to do with going into debt.

All I'm saying is that closing your credit card accounts will lower your credit score and unless there is a good reason to do so, you don't want to be doing that. Pay them off and throw them into the back of a drawer, but don't close the accounts.

jmjj215 · #9 (**permalink**) 09-06-2004, 07:51 AM

Terry,
I think we might be on the verge of agreement...

Which is worse: no credit report (you NEVER borrowed money)
a credit report with open accounts, but zero balances
a credit report where all the accounts are now closed.

If the best credit score would be one with open accounts but zero balances, with the accounts lying dormant, then I guess it wouldn't hurt just to leave them open forever, cut up your credit cards and pay cash for stuff. Am I right in my thinking?

The insurance thing is interesting and new to me. Do you think they also care about your credit score because people borrow money from the insurance company when their premium comes due? You said it had nothing to do with debt, but it might have to do with debt after all. Most insurees pay their premium on a payment plan - and looking at their credit history might shed some light on whether they would pay it after all. I don't know why a good credit score would lower the risk of an insuree (thus a lower premium) unless good credit equates to good driving. And the math pros at the insurance companies might have figured just that out.

would someone with no credit (never borrow money) be a lousy driver? You couldn't draw that conclusion really because you wouldn't know how that person handled debt, never having had any.

Keep the replies coming - you've already got my gears turning quite a bit these last few hours.

terry1156 · #10 (**permalink**) 09-06-2004, 05:00 PM

You do have a credit report even if you don't borrow money. If you have a bank account, then you likely have a credit report.

You'd be correct to assume that the best credit score would go to someone with credit cards open accounts, but zero balances.

Underwriting for insurance is all done by statistics. It's why you can get a better rate on your car insurance if you are an engineer instead of another profession or if you're a good student. If you have a good credit report, the statistics say your are a lower insurance risk compared to someone with bad credit or no credit and therefore can get a better rate.

So to answer your question, yes, insurance companies do conclude that a person with no credit is a worse driver (higher insurance risk) than someone with a good credit rating.