What does closing a store credit card do to your credit?
Two questions:
1) If I have a store card that I don’t really use anymore, what effect would closing that card have on my credit?
2) Stores always ask me to open a store card to save 15% and say I can close it later if I don’t want it. I always say no. Wouldn’t it negatively affect your credit score to be doing that all the time?
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I don’t close my unused accounts out because I read that this lowers your “available credit”, which in turns raises your debt-to-credit ratio. I think you can lose points on your FICO scores, but how severe the impact is I really don’t know.
nothing. . maybe you don’t need it anymore.
If you have debt on other cards it will lower your score because your total available credit will decrease, thus increasing your debt ratio (the amount you owe over total credit available as a ratio). How much of a drop will depend on the debt ratio on other cards, and what percentage of your total available credit the card you intend to close represents. Generally, unless you are trying to get away from a card with a yearly fee, or if having the card is costing you money, there is no reason to close an account if you have no blance on it. This is specially true if it’s an old account, as these will improve your FICO score; the older the better. The caveat is that if you are trying to apply for a large chunk of new credit (say a mortgage or car loan), having many cards (even if they have no balance) means you already have a large amount of credit available to you. So, even if you don’t owe anything on these cards, simply having the credit as available to you could result in new credit being denied to you. I would try to steer clear of the so called credit counselling programs who promise to get you out of debt for pennies on the dollar. After foolishly running up my cards (I know people – very irresponsible but I have learned my lesson) I called around and all of them told me to stop paying my credit cards so they go into default and that way they could get the bank to work with them. That was not something I wanted to do – I spent the money so I have to pay – I’m not going to deny the bank their monthly payments. They lived up to their obligation by extending credit so I must live up to mine. With increasing interest rates and a fear I would fall behind I called my bank (Bank of America) and explained my fears. They agreed to cut my interest rates to 5. 5% (from 28% mind you) and have a set monthly payment that will see the cards being paid off in a few years. The only thing they asked was that I agree to close the cards with a balance – and while that is not great for my credit (although it will be listed as closed by customer – not by the bank – which is better) it sure beats late payments. The hit my credit will take will be more than made up for by the thousands of dollars I will save in interest and the fact that I will have a zero debt obligation sooner. I have a store card that has hardly anything on it and another card that has no balance along with a mortgage and a car loan. I have never had a late payment – no one – so I think my credit can stand the closure with balance for the long term reward. The message is – talk to your credit card company. In this current economic time they would much rather work with you than risk a default. I was stunned by how accommodating B of A was – they were very compassionate and very understanding. The other factor to consider is the age of the account. If the account that charges the annual fee is very old then it is factoring positively in your score. So, unless the account is not very old and you don’t foresee a need for that credit in the near future, I don’t see a reason to pay an annual fee. Hope that helps.