Closing old credit cards?

[pinkxray]

I currently have 4 main credit cards. I have 2 that I opened 10 years ago (when I was 18) and 2 that I have opened within the last year. The 2 older ones have higher rates, no rewards and I never use them. I would like to cancel them but I always read not to close the card you have had the longest to maintain good credit. The two cards I have now have low interest and great rewards. Right now my credit score is excellent and I would like to keep it that way.

I barely use credit cards but like having them for emergencies and travel,etc. I usually pay off the balance each month. We already own a home and cars, so there won't be a need to get a loan approval for at least 5, 10 years?

Should I just cancel the older cards or keep 1 open?

Thanks for any advice

 

[leadfootlevi]

There's no harm in keeping them open, but there could be harm (credit score) in closing them. I'd keep them.

 

[Purseval]

You don't just have to keep them open in order to help your credit score you have to use them or they just stop reporting. Buy one or 2 small items a year, pay for them and throw the cards in a drawer for the rest of the time.

 

[Bren's Mom]

If there is no annual fee I'd keep them open. If you close them, your revolving credit will all be 'newer', and you might take a hit on your score.

 

[JDUCKY]

You don't just have to keep them open in order to help your credit score you have to use them or they just stop reporting. Buy one or 2 small items a year, pay for them and throw the cards in a drawer for the rest of the time.

No lender is going to just stop reporting on an open tradeline. If, for some reason, it does happen, simply call the lender and request they properly report the account (do not dispute with the credit reporting agencies...you'll risk a deletion of the tradeline completely...call the lender).

As for closing old cards, having long-standing open accounts can definitely help.

There are MANY variables in how the FICO scores are calculated:

Overall utilization - optimum is 5-7% with less than half of all cards reporting a balance)
Per card utilization - again, keeping this low is ideal)
Average Age of Accounts (AAoA) - Ideal is 5-7 years
Overall length of credit history - longer is better
Number of new accounts (6-mos, 12-mos, 24-mos seem to be the various intervals)
Number of inquiries (INQs) - 1-2 showing is best, and being at least 6-12 months old

One can actually see a drop in their FICO score if no new accounts are opened within a certain timeframe (1 year, 2 years) depending on the mix of age of the currently open/closed accounts.

So, if you have some older cards and they don't have an annual fee, perhaps charge something like a trip to the movies or a week's groceries and pay it off before the statement cuts so you don't incur any interest charges.

Also, not using a card can result in a Credit Limit Decrease. For example, a $10,000 credit card could be cut down to $1,000 which would potentially cause a large increase in your overall utilization (depending on the balance of your other cards).

Oh, and a closed account will remain on your report and count in your AAoA for 10 years after its closed.

 

[chalee94]

you do take a small hit for closing a credit card, but it's nothing lethal in and of itself. unless one of your cards is currently maxed out, i'd cancel one of the old cards if you don't use it.

if you pay on time and have established a credit history (as it sounds like you have done by buying a home and cars and so on), i wouldn't get hung up on trying to get a perfect credit score. a small "ding" won't hurt you and it's one less thing to worry about keeping track of.

i've canceled a couple of old credit cards myself this year and when i applied for a home refi last month, my credit scores were still over 800. since you are under 30, though, i wouldn't get carried away - keep one of the old cards (maybe the one with the higher credit limit) for a few more years before you cancel it...

 

[trip]

One can actually see a drop in their FICO score if no new accounts are opened within a certain timeframe (1 year, 2 years) depending on the mix of age of the currently open/closed accounts.

I haven't heard this before. We haven't opened any new accounts for several years and it hasn't affected our score.

I thought it hurt your score if you open too many accounts within a certain timeframe.

 

[JDUCKY]

I haven't heard this before. We haven't opened any new accounts for several years and it hasn't affected our score.

The wonder of the FICO algorithms. It is possible to lose a few points by not opening a new account. For instance, someone with over 30 years of credit history with a score well over 800 and hasn't opened a new account in over a year could take a slight hit (5-10 points).

It certainly helps to have some older open accounts so that when/if one needs to open up a new (or a few new) accounts, the AAoA won't take a big hit...just a slight drop.

I thought it hurt your score if you open too many accounts within a certain timeframe.

Yes, that can hurt one's score, esp. if those new accounts are charged up, even just for a short period of time.

Generally, anything over 1-2 accounts in a 6-month period would be seen as excessive. And, even then, opening that many every 6- to 12 months wouldn't be ideal. A couple accounts in a year, let them age for 2-3 years while they report $0 or near-$0 balances (but still showing usage) will be best for one's FICO score and one could likely get Credit Limit increases on those cards, too. GEMB accounts (Lowe's, Amazon store card, Gap, Old Navy, IKEA, et al) are the easiest to get CLIs on every 4-6 months provided there is consistent usage but low reporting balances. They also don't leave any hard INQs behind, GEMB uses soft INQs.

 

[firstcruise]

Don't close those accounts! 30% of your fico score comes from capacity(utilization), so if you close them there is a potential to really lower your score. Everyones situation is different, but if there is no fee to keep the card charge something once every six months and keep it open. It can't hurt but can certainly help your score in a big way.

 

[Handbag Lady]

The info here just goes to show that credit reports are pretty stupid. I'd love if we could just do away with them.

I don't have time to play their games.

 

[andycat]

The advice I've heard is to keep the old cards open, as your credit score is mostly a factor of the total amount of credit you have available versus the amount of your credit you use. By closing the old cards, you're reducing your total available credit.

With the credit card law changes, I've also heard that issuers are being more diligent about closing inactive accounts (especially Visa/MC/Amex). So buy a tank of gas every six months or so with those old cards. I have a reminder set in my calendar to make certain I don't forget.

There are any number of columnists who give good advice about credit issues. I like the Marketplace Money podcast, http://marketplace.publicradio.org/show/money/, and Michele Singletary's column, http://www.michellesingletary.com/.

 

[JDUCKY]

The info here just goes to show that credit reports are pretty stupid. I'd love if we could just do away with them.

I don't have time to play their games.

They're not stupid. They're complex and unknown to those who don't care or want to educate themselves. There's more to a credit report than getting a credit card. It can affect things like what one will pay for car insurance, how much one will pay in interest if carrying a balance is a necessity for a while, the ability to purchase a home or a car.

It's unfortunate that so much is still unknown about FICO scores (not to mention the various incarnations such as an auto-enhanced score or an employment score). But, that's the state of personal and business finance as it is today and until it changes for the better for the consumer, then being aware of one's credit report (and known the FDCPA and FCRA when it comes time to disputing off fraudulent or inaccurate information) and being educated about credit is in everyone's best interest (and toss those Dave Ramsey books in the trash if you want to optimize your credit score )

 

[Shleedogg]

I can't speak to how it will effect your credit score. However, if you don't plan to use them, make sure you still look at your statement regularly and are signed up so they have a way to contact you regarding fraud.

I have a card I opened when I was in college, probably 7 years ago. After I paid it off the last time, Feb 08, I stopped using it. DH and I have other cards that have much better interest rates and have bills due on the same day each month (have gotten burned w/ late payments in the past with them changing due dates). The account hasn't been touched in almost 3 years. When they sent my new card in the summer 09, I never even activated it. I got a text message Sun morning about fraud. Even though I hadn't activated my card (so it should not have been usable), they let a charge go through. Luckily it was only $91, the rest of the attempted charges were rejected and we weren't held responsible. It could have been much worse. DH and I decided that it wasn't worth the risk and canceled the card. My score is in the low 800s so we're hoping that even if my score does get lowered that it won't be enough to have a huge effect on it. It was my oldest CC, we shall see.

 

[Planogirl]

I agree with not cancelling the older accounts and do use the cards for small purchases occasionally. People are constantly shocked when they find that the credit grantor has closed their card due to inactivity.

 

[2Kds2K9]

This will make you scratch your head.

We had two discover cards, one we carried and one strictly for online purchases. The one we carry, we didn't use as much due to getting a better deal with another card. DH went to cancel the one DC card. It took him 20 minutes on the phone with Discover to cancel the card. He ended up threatening the person that we would cancel BOTH accounts before she finally cancelled the one account.

In the meantime, DH has been out of work for over a year. No income to speak of. Costco was offering a deal on Amex, so for grins we thought we'd try for the card. We were approved right then and there and given an 8K limit! HUH? Out of work and getting 8K? I know, I know. Our credit history is outstanding! But, no income and we get 8K.

The person at Discover did mention that cancelling the card could hurt our credit rating, but I don't think we took much of a hit. Plus, we have an open home equity line at our bank and have had the other two credit cards for over 20 years.

 

[disneychrista]

Another thing to keep in mind is that having TOO MUCH credit can hurt you too. Lenders will keep in mind that you could max out the cards and making debt to income ratio too high.

 

[IDoDis]

Go to http://www.credit.com/ and get your free credit score. There are no fees. This is not a hokey website. It will give you valuable information about your credit score by breaking down each category. It will give you a letter grade (A,B,C etc..) for each area and tell you tips on how to improve that area. One area was longevity of credit which was a pretty high percentage. So DO NOT get rid of your oldest cards.

My overall score was an "A" and each area was an "A" except for one area where I was dinged and given a "C" because I did not have a recent car loan (within the past 10 years). We always pay cash for our cars and keep them a long time. Didn't realize this would hurt my score. Well, that category only counted for 10% of my overall score, and I still had score over 800, so I'm not worried.

I still thought the info was interesting. When DD gets her first car (which will be used), we'll a loan or co-sign for it (she'll be making the car payments) and just pay it off early in say 6 months. That way I'll have a car loan on my credit.

 

[JDUCKY]

That's not a real credit score (or FICO score). Those would be FAKOs and can range from 100pts (or more) above or below one's real score.

Also, information is not the same on those as what's available from the hard copy reports from each credit reporting agency directly. http://www.annualcreditreport.com is where one can go to request the free annual report from each of the 3 main bureaus (Equifax, Experian, and TransUnion). Even then, I contact each 3 myself and request a hard copy.

 

[IDoDis]

That's not a real credit score (or FICO score). Those would be FAKOs and can range from 100pts (or more) above or below one's real score.

Also, information is not the same on those as what's available from the hard copy reports from each credit reporting agency directly. http://www.annualcreditreport.com is where one can go to request the free annual report from each of the 3 main bureaus (Equifax, Experian, and TransUnion). Even then, I contact each 3 myself and request a hard copy.

Nope, it's not a FICO, but it's still pretty good and gives good information without all kinds of spam email or tricks to get you to buy something. I think I read about it in a Shop Smart magazine (who is owned by Consumer Reports). They gave it a thumbs up. I've gotten my actual credit score before which was well over 800. I also access my free credit reports each year (one every 4 months), but they don't give you a FICO unless you pay for it.

 

[JDUCKY]

It may be helpful to give someone a general idea of where they are, credit-wise, but nothing beats the hard copies to find out if anything is inaccurate, not yours, potentially fraudulent, etc.