Close one card and raise limit on another?

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bpettay
 
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Close one card and raise limit on another?

Postby bpettay » Thu Oct 22, 2015 11:15 am

Hi all,

I am requesting some advice. Here's my situation:

I have two mastercard credit cards, through the same bank, with the same limits ($5000 each). I looked today and saw that one had a 17.9% rate while the other had a 11.9% rate. So, I called to get the high one lowered, and they would only lower it to 14.99%. Which makes no sense to me, since they have me at 11.9% on the exact same card for the exact same limit. So I was thinking about paying off my low balance on the higher rate card, closing the account, and then requesting a credit limit increase on the lower rate card. I have had the higher rate card longer, but only by about 6 months (one opened about 5 years ago, the other about 4.5 years ago).

My questions are: would closing a card and requesting a increase in balance (to match the 5000 I closed) cause the lower rate interest card to raise my interest rate? And how would doing this affect my credit?

Thanks!


Kevin86475391
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Re: Close one card and raise limit on another?

Postby Kevin86475391 » Thu Oct 22, 2015 9:38 pm

Hi and welcome to the forum!

bpettay wrote:I have two mastercard credit cards, through the same bank, with the same limits ($5000 each). I looked today and saw that one had a 17.9% rate while the other had a 11.9% rate. So, I called to get the high one lowered, and they would only lower it to 14.99%. Which makes no sense to me, since they have me at 11.9% on the exact same card for the exact same limit.

I can definitely see why that might seem odd to you, but actually I think lowering your APR a full 3% is excellent results and shows a good amount of flexibility on the part of the bank. There are some lenders out there who are extremely reluctant to lower APR at all and pretty much won't do it. Others may lower it slowly, but often by .5%-1%. Personally I think having them go down 3% is quite good results!

bpettay wrote:I have had the higher rate card longer, but only by about 6 months (one opened about 5 years ago, the other about 4.5 years ago).

This is likely why the APRs were different to begin with. It sounds like when you got the higher rate card about 5 years ago your credit score and overall profile were a bit worse than they were 6 months later when you got the lower rate card. Your credit score at the time of application has a big impact on the terms you get, and while you are often able to get credit limits adjusted accordingly once your score, income, and overall profile improve, it typically is a bit harder to get APRs lowered.


bpettay wrote:So I was thinking about paying off my low balance on the higher rate card, closing the account, and then requesting a credit limit increase on the lower rate card.

Definitely get that balance paid off. If you have to carry a balance at all, make sure it's on the lower APR card. However regarding closing and requesting a CLI, I wouldn't do it quite that way.

It depends a lot on the particular bank involved, but many lenders have very flexible options for moving credit limits around. Often they're completely willing to just shift your credit limit from one card to the other, perhaps requiring a minimal amount to stay on the old card, like $500 or something.

If that's an option definitely do that instead because it's unlikely to result in a hard credit inquiry, which can marginally negatively affect your credit score and which may make some lenders nervous. Hard pulls affect your credit score for up to 1 year, but remain on your report for 2 years, potentially posing a problem on manual review by a human credit analyst. However, 1 or 2 inquiries isn't usually much if any problem.

A credit limit increase request may or may not result in a hard pull inquiry (it will depend on your lender), but is typically more likely to than simply requesting that your credit limit be moved from one card to another.

bpettay wrote:My questions are: would closing a card and requesting a increase in balance (to match the 5000 I closed) cause the lower rate interest card to raise my interest rate?

That's extremely unlikely unless there's some other negative activity happening with the account like missed payments or something. So I wouldn't worry about that.

bpettay wrote:And how would doing this affect my credit?


Credit situations are always a bit of a "your mileage may vary" type situation, but generally you'd be looking at it potentially affecting your credit in the following ways:

Average age of account (AAOA)/Age of oldest account - Having older accounts/more credit history is better for your credit score. All else being equal your score will be higher with an average account age of 15 years versus 2 years for example. Your oldest account in particular has bearing. HOWEVER, a closed account will typically stay on your credit report - and continue factoring into your account age - for 10 years after being closed. So in the near term this shouldn't matter at all, and by the time the account does age off in 10 years, your other account(s) will be older and quite likely able to absorb a lot of the damage. I wouldn't worry about this unless you're thinking very long term.

Utilization - Your greatest effect is likely to come from how closing an account affects your utilization, which refers to the amount of credit you have available, vs how much you have used. Let's say your total available credit is the $10,000 we've been talking about, if you owe about $3,000 in balances then your utilization is 30% (3,000/10,000). However, if you close one of the $5,000 limit cards, but continue to owe about $3,000 on the other card, then suddenly your utilization has spiked from 30% to 60% (3,000/5,000) even though you don't owe any more in terms of pure dollars. A 60% utilization would have a much worse effect on your credit than a 30% utilization. However, in your situation since you plan to offset the lost credit limit by raising the other credit limit, IF you're approved and things go as planned, it shouldn't have an effect at all on utilization. Another important factor to keep in mind is that utilization is only calculated on a month-to-month basis depending on what balances report to the credit reporting agencies. There's no historical impact from utilization.

Inquiries - As mentioned above having several credit inquiries can also negatively impact your credit, and could raise red flags with lenders if it looks like you're suddenly trying to get approved for a lot of new credit (the theory being that you know you're going to need it and may not be able to pay your bills on time). However, typically 1 or 2 inquiries shouldn't pose a problem, and I wouldn't worry too much about it. Plus, if you can just get your credit limit transferred rather than doing a traditional credit limit increase, you likely won't have a new inquiry at all and even with the CLI there's a chance they'll only do a 'soft pull' instead of a 'hard pull' which won't negatively affect your credit. So this is also not likely a major concern.

Bottom line: sounds like you'll be fine if things go according to plan.

I'd still recommend trying to do the transfer before closing and asking for the CLI on the other card though. Regardless, even if you don't/can't get the credit limit transferred from one card to the other, I'd recommend asking for the CLI on the lower rate card BEFORE closing the old one, that way your utilization definitely won't suffer and you'll be working with a bit more info before closing the account.

The only drawback to this would be if the bank feels that 10K total is the maximum amount of credit they are willing to extend you, and thus would approve you with the higher rate account closed, but not with it open (since you'd briefly be at 15K total credit)...but this probably won't be the case and personally speaking, I definitely feel like the advantages of asking for the CLI before closing the old account outweigh the risk.

Also, definitely try to make it a habit to pay off your cards in full every month. This will both help your credit score and of course also save you money on interest.

Anyway, best of luck!
Last edited by Kevin86475391 on Fri Oct 23, 2015 7:33 pm, edited 1 time in total.

Nixon
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Re: Close one card and raise limit on another?

Postby Nixon » Thu Oct 22, 2015 10:26 pm

What issuer? Why can't you simply combine the limits vs closing and then req. CLI?
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CarefulBuilder14
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Re: Close one card and raise limit on another?

Postby CarefulBuilder14 » Fri Oct 23, 2015 1:11 am

Are you actually carrying a balance, or likely to carry one? Or you don't pay interest and are just focused on your APRs for some other reason?
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takeshi
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Re: Close one card and raise limit on another?

Postby takeshi » Fri Oct 23, 2015 9:06 am

bpettay wrote:My questions are: would closing a card and requesting a increase in balance (to match the 5000 I closed) cause the lower rate interest card to raise my interest rate?

I doubt it but can't say for certain. I don't recommend closing a card and then requesting a CLI on the other card. See if your creditor will allow you to reallocate limits and then close the higher APR card.

Ideally you want to pay every statement balance in full. The APR really doesn't matter then since you would not incur interest. If you have to regularly carry balances you may want to look at your budgeting.

bpettay wrote:And how would doing this affect my credit?

The immediate impact from closing a card all depends on the impact on revolving utilization. You'd have to do the math to see the impact to your revolving utilization. If a hard pull is required for a CLI then that can also have a scoring impact. If you can reallocate you may not need to incur the hard pull and the impact to revolving utilization would be mitigated.

bpettay wrote:So, I called to get the high one lowered, and they would only lower it to 14.99%. Which makes no sense to me, since they have me at 11.9% on the exact same card for the exact same limit.

APR's are also set based on your credit at the time of consideration. Do assume that limits and APR's are simply matched. Your credit at one point qualified for 17.9% on the older card. Then it qualified for 11.9% on the newer card and now it qualifies for 14.99% on the older card. Your credit is not static and changes as the data in your reports change.

As stated above, a 3% drop in APR is a good drop.



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