Closing credit card question

[fsumom]

My husband and I want to possibly buy a house in the next couple of years so we are wanting to make sure our credit doesn't suffer. We have a credit card with BOA with a zero balance. I've had this card for 9 years which is the longest history of all my cards, the next oldest is probably 4-5 years old . BOA has decided they want to start charging an annual fee. Do I keep the card open and pay the annual fee or possibly have our credit score lowered by closing it? I've worked for a credit union for several years and cannot figure out what I should do.

[kork13]

No. If you have no interest in using the card, there's no reason whatsoever to pay an annual fee on it. BOA should be giving you an option to either pay the new fee, cancel the card, or possibly switch to a different (no-fee) card. You want the second or third options.

A credit score isn't so fragile that closing a single card will wreck it. First off, all of the good history that you have with the card will STAY on your credit report for the next seven (I think) years. Beyond that, closing it will have 2 impacts: average account age and total credit available. You can't do anything about account age, so don't worry about it. You have a 5 y/o account, which is just fine. For the available credit, you can ask your other cards to raise your credit limit to compensate, or if they won't, another option would be to open a new card to regain the credit availability. But again, your score doesn't hinge on your credit limits, so you really don't need to do anything about that either.

The most important thing you can do for your credit is to continually pay your debts on time and in full. Do that and you'll be fine.

[thesimplemoneyblog]

Good question. First, have you tried reaching out to BofA to complain about the fee given your long credit standing with them and see if they will waive it?

It will actually temporarily hurt your credit to close the card since it would increase your "credit utilization" ratio which is one factor in credit scores (say if you had two cards with $4,000 limit ($2k each) and $500 on one of them...if you close one, then your credit utilization goes from 12.5% to 25%). Seeing as how you are talking about two years from now, I wouldn't think you should be concerned about the short-term potential impact of closing the account now. If you are responsible with the cards, then it might make sense for you to reach out to your other cards to see if they can increase your limit, so if you decide to close this old account, your credit utilization doesn't rise significantly. Credit utilization is important (the lower the better), and length of credit history are important too, so the longer you can keep the other ones, the better it could be.

Unlike what kork13 said, good credit stays on your report forever (no statute of limitations for when it comes off). It's bad/negative credit that has a seven year (in some cases slightly different) statute of limitations for when it falls off your report.

Be honest with yourself though, and if you sometimes have trouble using a card when the credit is available (as a lot of people have trouble with this), then you will be FAR better off just closing it and being done with the card.

If you have great credit already, then a minor improvement in your score will not end up making a difference or be worth the hassle of keeping it.

[fsumom]

Thanks to the both of you! I ended up calling BOA and closing the card. They did state that they could put in a request for the annual fee to be waived in 2013 but I decided that it just wasn't worth it because I'd still have an annual fee card in subsequent years. I already ended up paying the $59 last April that they wouldn't refund (I can understand why as it was 9 months ago). Our credit scores are both in the high 700's with Equifax so I'm hoping this doesn't hurt it too much. I do know that good credit will stay on my credit for 10 years from the date the account is closed (negative is 7 years).

[thesimplemoneyblog]

Thanks FSUMOM / OP for the confirmation and update. I had thought that good credit would stay on indefinitely (since by law it could be there forever if they wanted since there's no mandate that it should fall off after a period of time). Didn't realize it does typically drop off after about 10 years though, so learn something new.

Best of luck in your future home purchase!