Closing Credit Card Accounts and Credit Score

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Chibi
 
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Closing Credit Card Accounts and Credit Score

Postby Chibi » Thu Nov 06, 2014 3:28 pm

I'm new to this forum and wanted to get some insights. I am thinking about closing 3-4 credit card accounts (Freedom, Sears, Citibank Slate) in the near future due to high APR along with two inactive accounts. Then, possibly applying for a Discover card and transfer the balance to pay it off at 0% interest. Based on all the reads, Discover offers best accomodation for me. I'll have 3 credit cards in total with this effort. But, I also heard that closing credit cards even with zero balance can actually reduce your credit score (ironic). Anyone know if this credit scoring impact is true?


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Vattené
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Postby Vattené » Thu Nov 06, 2014 4:04 pm

Closing a card with a zero balance adversely impacts utilization. The total outstanding balance stays the same but the total available credit goes down. The denominator decreases, so the ratio goes up. This is how it can reduce your credit score.
-Vattené
FICO-8:
EX - 827 (4/17) | TU - 812 (4/17)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now

Nixon
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Postby Nixon » Thu Nov 06, 2014 4:16 pm

Vattené wrote:Closing a card with a zero balance adversely impacts utilization. The total outstanding balance stays the same but the total available credit goes down. The denominator decreases, so the ratio goes up. This is how it can reduce your credit score.


Every person I tell this to looks at me like i'm crazy "If I don't have anything on it, I don't need it."

or "I'll just go into debt again", or there's the only one that makes sense "I kept hiding it but she kept finding it."
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thom02099
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Postby thom02099 » Thu Nov 06, 2014 6:20 pm

Vattené wrote:Closing a card with a zero balance adversely impacts utilization. The total outstanding balance stays the same but the total available credit goes down. The denominator decreases, so the ratio goes up. This is how it can reduce your credit score.


+1 -- This. It's about utilization.

Assume for a moment that you have no balance on any card. You have $50K in available credit to you. You make a charge of $5K on a card. Your utilization is 10%. However, if you've closed some accounts and your available credit drops to $25K, then that same $5K charge on a card will now result in utilization of 20%. Doubling your utilization will impact your score.

However, closing accounts is your call. If you are not benefiting, then it's your choice to close them, whichever one(s) that should be.

Also, Slate card is issued by Chase, not Citibank.
Retired, and in the process of retiring cards!
EQ = 846 EX=828 TU = 836 as of 02/2016

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Vattené
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Postby Vattené » Thu Nov 06, 2014 6:40 pm

Chibi wrote:I'm new to this forum and wanted to get some insights. I am thinking about closing 3-4 credit card accounts (Freedom, Sears, Citibank Slate) in the near future due to high APR along with two inactive accounts. Then, possibly applying for a Discover card and transfer the balance to pay it off at 0% interest. Based on all the reads, Discover offers best accomodation for me. I'll have 3 credit cards in total with this effort. But, I also heard that closing credit cards even with zero balance can actually reduce your credit score (ironic). Anyone know if this credit scoring impact is true?

I have never transferred a balance before, but surely you can't close the card before applying for the Discover if you have an outstanding balance on it?
-Vattené
FICO-8:
EX - 827 (4/17) | TU - 812 (4/17)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now

Cre
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Postby Cre » Thu Nov 06, 2014 10:11 pm

I stumbled on this site in my search one type of credit card... and signed up and stayed because I was utterly shocked to see what an art, sport, and science managing one's credit has become. Reading some of your signatures (most of which are written in a code language I have yet to understand) is truely eyeopening. I had no idea. NO IDEA.

I had to re-read Vittane's post 10 times over and over again before I understood it. Count me as one of Nixon's nemesis... "if I don't need it, why have it?".

So I really appreciate this thread, and this site. I'm going to stick around until I learn how to manage this credit card system. Before reading around here, I too, would have closed any unused accounts. But now, I get it. It is better to have a ton of credit cards, with high limits, that are un utilized. Is that right?

So to the OP... it sounds like you should try to transfer balance to a better rate card, but still keep the other credit card line open, and unused, due to it's unfavorable terms and lack of benefits.

Experts... would you agree? Is this the gist of what you recommend.
Current Cards:
AmEx Platinum Charge: NPSL, $450 AF
AmEx Reserve Credit: $30K limit, $450 AF
Chase Slate Visa Credit: $32K limit, No AF
Future Strategy:
Near Term: Need a good MasterCard for places that won't accept AmEx or Visa
Long Term: Will downsize out of one or both current AmEx cards to reduce AFs

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Vattené
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Postby Vattené » Fri Nov 07, 2014 11:57 am

I apologize for the lack of clarity. I am by no means an expert. I got my first prime card earlier this year, which lead me into this world. I have been in it long enough, it would appear, that when I try to spell things out clearly I am still being too concise and relying too much on shorthand.

Strictly speaking, leaving them open and unused will be better for your score. HOWEVER, leaving accounts unused and open leaves the risk of fraud, and it can take a while to find out if you are completely ignoring the account. It's yet another caveat to take into consideration.
-Vattené
FICO-8:
EX - 827 (4/17) | TU - 812 (4/17)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now

Nixon
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Location: Great Southwest

Postby Nixon » Fri Nov 07, 2014 1:10 pm

Cre wrote:I stumbled on this site in my search one type of credit card... and signed up and stayed because I was utterly shocked to see what an art, sport, and science managing one's credit has become. Reading some of your signatures (most of which are written in a code language I have yet to understand) is truely eyeopening. I had no idea. NO IDEA.

I had to re-read Vittane's post 10 times over and over again before I understood it. Count me as one of Nixon's nemesis... "if I don't need it, why have it?".

So I really appreciate this thread, and this site. I'm going to stick around until I learn how to manage this credit card system. Before reading around here, I too, would have closed any unused accounts. But now, I get it. It is better to have a ton of credit cards, with high limits, that are un utilized. Is that right?

So to the OP... it sounds like you should try to transfer balance to a better rate card, but still keep the other credit card line open, and unused, due to it's unfavorable terms and lack of benefits.

Experts... would you agree? Is this the gist of what you recommend.


I'd close an AF account I wasn't using actively...

For example now that I have much better rewards cards. I'll be downgrading my Blue Sky Preferred to a Blue Sky, why only downgrade? It has my highest personal limit at $12,000. I suppose I could transfer most of it to my Everyday, but that card serves as a reminder to me that if you don't wrong AMEX, they won't wrong you.
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Chibi
 
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Location: san francisco bay area

Postby Chibi » Fri Nov 07, 2014 1:31 pm

Thank you for all the responses. I learned and got the "hidden" answer I needed. Who knew about "utilization"! So, I will keep them open for now. My original direction of eliminating the number of credit cards were not only based on centralizing my finances, but also based on mortgage loans. At one point, I was told by the bank I was dealing with at the time that I had too many "line of credits" even though I wasn't using it and that had some negative impact on how they reviewed loan applications. So, if I have understand the concept correctly, it's better to keep the credit card accounts open with zero balance from credit score perspective, which the score is used to evaluate one's credit worthiness. But, from loan assignment angle, having too many open accounts with credit lines can have an impact on how loans are approved. Hmmmm. This sounds like another topic by itself.

BTW, I wish credit card issuers would offer "0 Interest" to current customers as they're offering all over right now as Introductory to gain new accounts.

Thank you, again.

Cre
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Postby Cre » Fri Nov 07, 2014 3:20 pm

Chibi wrote:it's better to keep the credit card accounts open with zero balance from credit score perspective, which the score is used to evaluate one's credit worthiness. But, from loan assignment angle, having too many open accounts with credit lines can have an impact on how loans are approved. Hmmmm.



Yes, things that make you go "hmmmmm". On the one hand, credit score effects mortgage loan approval, and on the other hand, open lines of credit effects mortgage loan approval, and on the foot, open lines of credit effect credit score... full circle.

Finding that balance is key, I imagine. Since so many decisions are likely made by computers, driven by software algorithms wrung out by Ph.D totin' actuaries, it seems like that balance is determinable mathematically. I'll never find it that way, so I'm hoping to read more from the experience posted here.
Current Cards:
AmEx Platinum Charge: NPSL, $450 AF
AmEx Reserve Credit: $30K limit, $450 AF
Chase Slate Visa Credit: $32K limit, No AF
Future Strategy:
Near Term: Need a good MasterCard for places that won't accept AmEx or Visa
Long Term: Will downsize out of one or both current AmEx cards to reduce AFs



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