Which Credit Cards to Close?

[abowers]

I'm working on downsizing my debt, and I've done well in my opinion over the last 8 months or so. Several of my credit cards (I know I shouldn't even have this many open) have zero balances. I'm not worried about the temptation of using them because I've been good with that. I know this is a subject of controversy, but should I close some just to simplify things, or leave them open for credit history? My fiance and I will not be buying a house for at least 4 more years (when we're both done with grad school and can figure out where we'll be looking for long-term jobs). No other big purchases, i.e. car, as we did that last fall. Here's the deal with my credit cards:

Retail Store Cards
$500 limit, opened July 2003
$850 limit, opened May 2003
$1000 limit, opened April 2003
$200 limit, opened July 2001
$400 limit, opened December 2001

General Credit Cards
$1500 limit, opened March 2004,
-->10.99% interest rate after promotional 0% ends July 2007
$2000 limit, opened May 2006
--> 0% interest until May 2007, opened strictly for some balance transfers from higher int. cards & will be paid off before May 2007.


Misc. Other Debt:
--$11,816 left on the car loan/started at $13,894 in Oct 2005
--$17,023 left on undergrad loans (in deferment for next 2 years while in grad school)/2.7% interest rate/started at $17,892



Any opinions on leaving these accounts open vs. closing some? Or which ones to close if any? Thanks in advance!

[safari]

Closing credit cards will reduce your total available credit, making your credit balance to available credit ratio higher, which lowers your credit score. I wouldn't close any credit cards until you pay off the balances that you transferred to 0% credit cards. After that you can close all your retail store credit cards. Even after you cancel those credit cards, they will stay remain in your credit report; it will just say "account closed per owner request" or something like that. For credit report purposes only the length of your credit history matters, and not whether the account that you opened back in 2001 is still active. They will still have a record that your credit history started in 2001.

[Jacklad]

Besides the history, there are two other factors you should consider: utilization and fees.

Utilization refers to the percentage of credit you are using. If you have cards with no balance, your overall debt will be a smaller percentage of your available credit. Lower utilization results in higher credit scores. This side of the equation favours leaving the cards open, but unused.

*But* (and you knew there would be a but, didn't you? ) if there are annual fees on the cards, you have to take that into consideration - no use paying for something that you aren't using. If they're no fee cards, then there's no problem - just don't use them.

Jackie


Jackie

[The Budget Man]

Just a quick question.

What benefit are you getting from the store cards?

One ideal that I like is to have as simple a financial situation as possible.

Enjoy Your Money
The Budget Man

www.TheBudgetMan.com

[autoxer]

Originally Posted by The Budget Man

What benefit are you getting from the store cards?

Credit history. They are the oldest cards. I wouldn't close any of them, because there is nothing 'wrong' with having that many cards. I only use two cards to keep my finances simple, but I have other accounts open, because there is no benefit to closing them.

[vsjhoc]

Originally Posted by autoxer

Credit history. They are the oldest cards. I wouldn't close any of them, because there is nothing 'wrong' with having that many cards. I only use two cards to keep my finances simple, but I have other accounts open, because there is no benefit to closing them.

Agree. While Safari is correct that you established your credit history in 2001, you don't want to cancel those store cards. History also includes your average length of account, so if you get rid of the old cards, you'll have a shorter average history (and a lower score).

Credit cards only help your credit score if you use them responsibly. They don't do a whole lot just sitting there with zero balances. You need to show that you can pay on time. So try to regularly charge a small amount (not on every card!), and pay the bill on time.

Good luck!

[abowers]

[quote=The Budget Man]Just a quick question.

What benefit are you getting from the store cards?

[quote]

On the oldest cards-- there is no benefit. I haven't used them in a long time.
Also the $500 limit card has no benefit.


On the two cards with the $850 and $1000 limits, I get $5 for every $100 I spend + other periodic "discounts." Which I haven't been using lately either. Not a big discount, I know, but it helped out when I had to buy some dress pants for a new job.

[Ima saver]

I would leave them all open, just put them away and don't use them!

[tener]

some credit card companies allow you to transfer new balance on a new 0% period even though you are not a new customer, you could use this and transfer from the cards that are currently charging you interest or those that will start charging you soon.

[tener]

Or you could decide based on each cards policy, ditch the risky ones and keep some for emergency use

[CraigThor]

I just ditched 3 that were charging me monthly fees saving me $240/ year for something I will be paying off monthly. If your getting charged for them get rid of them that's what I just did.

[PRICEPLUS]

I'd keep them and not use them at this point!

[abowers]

Originally Posted by tener

some credit card companies allow you to transfer new balance on a new 0% period even though you are not a new customer, you could use this and transfer from the cards that are currently charging you interest or those that will start charging you soon.

I have a zero balance on all cards charging me ANY interest rate right now :-) The only balance I have is on a 0% card, and I'm on par for paying it off before the promotional period is up.

None of the cards that I have charge yearly fees, some just have ridiculous interest rates. Well, all are ridiculous, some more than others.

[vishenda]

Please dont close any of your cards! These limits are low and each account is over 2 yrs old, it would hit your FICO scores badly if you decided to close them. The card with the 2000 limit should remain open as well, even if you just opened it. In 4 yrs when you want to buy a house, it would be over 4 yrs old.

What you neglected to tell us was what are the current debts on the cards? If your total debt is below 30% of your combined credit, your fine, but if you can get them lower that would be great too. Can you pay them off all (if not how many months will this take for you to do?) If you can keep most of the cards at a zero or a balance that is no more than 10% of the credit limit, your fine. In fact having a little debt is beneficial to your FICO scores.
You dont have much of a problem here, unless your tempted to rack up charges on these accounts (if so, cut up the cards and leave the accounts open)

[poundwise]

Wow. There is a lot of poor information here. Or at the least, absolutes that aren't.

Closing accounts will not necessarily hurt your score. First of all, dormant accounts that are just sitting there are not regarded by the FICO scoring system in the same way as if they were being utilized. Secondly, closing an older (than average) account will, in fact, likely lower your score, short-term, but not long-term. There are many other factors. Including the fact that if you close both an older account and a newer account the two can act to cancel one another out in terms of the average age of credit accounts. That's how averages work, after all.

Also, if one does hold unused accounts opened, whether for the purpose of attempting to stretch out the average age or the purpose of having a better utilization ratio, the time when this is absolutely the wrong strategy is when one is leading up to buying a house! Unlike your credit score, mortgage lenders will view open credit lines as debt (potential).

"...a lot of available credit means you have the capability to overextend yourself in the future ...too much of this good thing can make them seem like a poorer credit risk." (source Bankrate.com)

Thanks PW, you beat me to the punch. As was the case for me (regurgitated so often it should be my signature), my score was never close to what it is now until I closed out all the little "cardlings" I had floating around and consolidated to only the one that I actually use.

I didn't close them with that effect in mind, I did so because I wanted to simplify my world (the higher score was just a nice unexpected side benefit.)

[HalMd]

Originally Posted by The Budget Man

One ideal that I like is to have as simple a financial situation as possible.

+1

I have one card in my wallet, and another at home in the safe.

[abowers]

Originally Posted by vishenda

What you neglected to tell us was what are the current debts on the cards? If your total debt is below 30% of your combined credit, your fine, but if you can get them lower that would be great too. Can you pay them off all (if not how many months will this take for you to do?) If you can keep most of the cards at a zero or a balance that is no more than 10% of the credit limit, your fine. In fact having a little debt is beneficial to your FICO scores.
You dont have much of a problem here, unless your tempted to rack up charges on these accounts (if so, cut up the cards and leave the accounts open)

Retail Store Cards
$500 limit, opened July 2003 --- Zero Balance
$850 limit, opened May 2003 --- Zero Balance
$1000 limit, opened April 2003 --- Zero Balance
$200 limit, opened July 2001 --- Zero Balance
$400 limit, opened December 2001 --- Zero Balance
------
$2950 Limit / 0 Balance

General Credit Cards
$1500 limit, opened March 2004, ----$1000 balance
--> 0% interest until July 2007

$2000 limit, opened May 2006 ---- $900 balance
--> 0% interest until June 2007
-------
$3500 Limit/ $1900 Balance

A grand total of $1900 debt/$6450 limit on revolving accounts = .294

The min payment is a mere $10/month, but I'm paying $100/month on both of the above cards so the balance will be ZERO by the time the promotional rate is up.

I was just feeling like that's an awful lot of open accounts -- I didn't know if too many open accounts could effect you negatively, even with no balance.

[Jacklad]

Originally Posted by abowers

I was just feeling like that's an awful lot of open accounts -- I didn't know if too many open accounts could effect you negatively, even with no balance.

It won't affect your credit rating, but could affect your ability to borrow. That's because lenders consider your debt/service ratio and may assume that since you have open credit lines, you could run out tomorrow and max them out.

Friends found that situation when they were applying for a mortgage. After a discussion with the loans officer at the bank, they just closed a few accounts and were approved. At that point, there was no concern about closing the accounts impacting their FICO score, as the bank already had their score and they weren't considering any major purchases for the next year or two.

Jackie

[The Budget Man]

Isthe purpose for having the cards to use them or is the purpose to get a good rating for a Mortgage?

Enjoy Your Money
The Budget Man

Remember The simpler the budget, the more likely you will be able to live with it. www.PersonalityBudgeting.com