I recently retired my Home Equity loan and my final credit card debt. I now have four credit cards but want to keep just one. I plan to contact all four companies and go with the one with the lowest interest rate and cancel the others.
Is there a "correct way" to cancel a credit card so that it reflects accurately on my credit score? I have read somewhere that you must send a letter, cut up your card and send it back, etc. Can anyone share views on 1) whether this is a good idea and 2) if so, what is the proper procedure?
If (ideally) you never run up a balance again that isn't paid off in the same billing period, then the interest rate is irrelevant. You might also want to consider customer service issues such as reward points, availability of "virtual" card numbers for on-line shopping, etc.
I can think of only two reasons why you might want to cancel. I can think of one good reason not to cancel: it's better to have credit available, and not need it, than the other way around (as long as there are no significant annual fees). A corollary to that is, if there is ever a problem with your one card that causes it to be temporarily frozen, it's nice to have a "backup" card available.
The two "cancel" reasons have to do with ID theft and credit scoring, and I discount both reasons. If you keep the unused cards stored securely somewhere, and no longer receive any statements due to zero balance, then the odds of anyone getting the number are very small.
As for credit reporting, two issues: even if you "cancel", the account is likely to stay on your report for a long time, maybe or maybe not reported as "closed" (since the credit agencies are independent of the card issuers). Second and most important, canceling cards you have had a while I believe will LOWER your credit score.
Congratulation for getting rid of the debt. I'd write the letters to cancel and advise that you've destroyed the cards. Quite some time ago, I canceled a card and it was stolen in the mail, of course my letter had my name, and there was the card, cut in half. I wasn't held liable, but the series of calls and letters, and feeling like I was being treated like a thief was enough for me. (Why they didn't kill the account when I called to cancel is beyond me, they insisted I send them the card cut in half.)
But - I'd not be so quick to cancel. A chunk of your credit score has to do with the age of your accounts and % of unused credit. You are better off just keeping those cards in a safe place. Unless, of course, they carry an annual fee.
Well, you'd use it at least the once - for that initial purchase. Supposing you paid it in full and then never used it again, you'd probably get a statement with the zero balance (showing your payment) and almost certainly one statement a year.
In my experience, when I have no activity (not necessarily a zero balance - because there's a zero balance on the month you pay if off, but there is activity - the crediting of the payment!), I don't get statements from credit cards.
At a minimum, they need to mail you a privacy statement once per year, by federal law. I'm pretty sure they have some obligation to contact you at least once a year about your account anyway. Anyone know the actual rules?
(You should be getting yourself a copy of your credit report at least once a year and making sure that all the accounts considered "open" really should be!)
You should get the card in the mail (assuming you gave accurate information on the application.)
I had a friend that would habitually fill out credit app. forms to get discounts and free gifts. He would, however, never put accurate information on the form.
Except that some credit cards will cancel your account if you don't use it. Citibank did that to me for a card that I hadn't used for a few years. So the question is: is it better to close your own card? Or have it closed on you?
But why? Are we just gaming our credit scores? If we just do the basics, like making payments on time and keeping balances low, we'll have a score that's high enough to get any loan we can qualify for at the best available rates.
In my opinion, the ideal situation is to have two credit cards from two different providers (just in case one card is refused at an inconvenient time) and always, always, always pay them both off every month.
More cards is more risk of unauthorized charges and more hassle with more statements. I know these are small things, but who needs it?
I just always get asked to take out a credit card when buying something at a retail store...such as Dicks sporting goods. They will give you good discounts on merchandise for taking their card
Yes, it's about optimising credit scores. 2 accounts is a very thin credit file and will give you a lower FICO than one with 4. Average age and total utilisation is important as well.
Even if you pay in full every month, most card issuers report the statement balance as the utilisation of the card. So, a $1000 card with $900 on the statement shows a very high utlisation, even if you pay in full every month.
Cards with no charges won't get a statement.
Total credit utilisation as a percentage of total availability is also taken into account.
FICO and credit reports are becoming more important every day, so playing their game a little can't hurt you.
I'll repeat a post from January; From the PBS show Frontline's "Secret History of the Credit Card" we have;
35% payment history
30% amounts owed
15% length of credit history
10% new credit
10% types of credit used
Now, keep in mind, the 'amount owed' is not just the dollars involved, it's percent available credit on the average of your accounts. Since 15% is the length of credit history, there's some value to keeping older cards active, but the formula for the actual score is not public.
If a large enough group of people were willing to pay for score retrieval, and sign up for new accounts, and cancel other accounts in a methodical process, we'd have an answer to the specific impact. I just accepted a zero % CC deal and put the $20K in the bank for 6 months. I will gross $450 (these was a $50 transfer fee) and net less, of course. Now, having no need to refinance my mortgage, and no other FICO-related concerns, I still wonder what my pre-advance score looked like, what it is now, and how it will bounce back after the payoff in April 08.
Also, worth repeating, FICO score does not take income into account. So there was a time when I was young and stupid, had a great FICO score, but when it was loan time, got rejected due to an insane debt to income ratio.
This amazes me. I haven't a clue what my FICO score is, but I doubt it has any affect on anything I do. I did happen to get a new credit card last February, with more credit than I need, so I guess my score is OK. Now what else? Insurance? I'm not changing insurance companies, chasing around a few dollars here or there. If my husband I decide to borrow money (for what, I can't imagine), we'll just go to our credit union where we've done business for years and where they know us and we'll get the best rates they offer. But, really, I'm not playing anybody's little game.
It is like a romantic relationship. When judging personal coolness... is it better to be the one who got dumped, for your inadequacy? Or is it better to be the one who pro-actively dumped that loser who wasn't worthy of you?
Like it or not, it is perceived the same way on credit reports.
Yeah, it is our patriotic duty. Although the actual benefit can work oddly, depending on the specifics.
If I carry a balance on my NZ based credit card... the profits go to an Australian based bank holding corporation. Oh well, at least my interest payment is contributing to somebody's economy. And I am sure that they feel good about that.
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