Closing Credit Card Hurt Your Credit?

[alicia]

I know this might sound like an odd question, but does it hurt your credit to close down a credit card? I currently have three, one of which will be closed down in the next month (it's a store credit card) once the last no interest payment is made on it. The other two are BMO mastercards. One is not even activated. I initially signed up for it because it had a better rewards program on grocery purchases, but I never activated it when I got it. I don't want all of this available credit laying around, but I don't want to hurt my credit in the process. Any help would be greatly appreciated.

[ame555]

I think its recommended that you keep them open - it shows you have a good history if you paid it on time etc. You can just keep it open and cut up or hide the card!

[Mauigirl]

Yes, keeping them open is a good idea - to a point. It is good t show that you are responsible with the credit you have, not maxing it out etc. But you also don't want to have too much unused credit at your disposal if you go in for a new credit offer or car loan etc. I would pay off that last payment and maybe keep the card open for a while before deciding when you are ready to close it. Just cut it up as suggested if you are sure you do not want to use it again.

[alicia]

Thanks for the information. I guess I'll hang onto those $0 balance cards for a while.

[Ciel]

Agree with the advice above, to keep cards open, in order to keep your credit history available. Would be worthwhile to check card terms to see when card lender considers an account dormant. Also, see if there are any fees that might exist for not using your card (to avoid any surprise).

Consider getting the free basic credit report from TransUnion or Equifax some time after your last payment, so you can see what is on your file. There is a fee for a detailed report, but basic one is free once per year.

[MortgageQueen]

Here's a little secret for you Alicia. Should you ever apply for a mortgage or even a loan, potential Lenders look for active use of credit so as to analyze your payment habits.

When I say "active", I don't mean go to town racking up credit. I just mean using it and paying it, at least periodically. Maybe you should revisit that card that gave you grocery awards. If you feel you want tight control, you can use it and go home and pay it that night if you prefer.

Another KEY thing in the credit game is keeping your limits as LOW as neccesary. You may not be using ANY of your cards, but if you have high credit limits that will adversely affect your credit score. You have to keep an eye on this because credit companies will just up your limit with a small note on your statement and you may not even realize it.

[Insane]

I disagree....all you need is 1. The "hit" your credit rating takes when you close an account is temporary. If you have a credit card, are using it responsably there really is no reason to have 3. Not to mention that temptation is hard to resist sometimes.

[khipson]

^^^ A big ditto to Insane's comment. Also to the above comment about available credit - that's why applications ask for the limit and the balance. They want to know whether you can run out the day after you buy a truck and max out $10K more on accessories and doodads, and then not be able to afford your truck payment.


And something else to consider, as Dave Ramsey says, you only need a credit rating if you're planning on getting more credit. Why have three credit cards at a zero balance if you obviously don't even use credit? Having one is fine, sure, but so is having a checking account that you use responsibly. You don't need a credit card to buy a house, you just need a downpayment and a stable income. And anything else is depreciable and shouldn't be bought on credit anyway (yes, including cars).

We actually have no credit cards, sometimes I do miss that ready cash, but we're better off by far!!! We have a "Global Payment" card - it's a Mastercard linked to our bank account. Best of both worlds, and no monthly bill.

[MortgageQueen]

I disagree....all you need is 1. The "hit" your credit rating takes when you close an account is temporary. If you have a credit card, are using it responsably there really is no reason to have 3. Not to mention that temptation is hard to resist sometimes.

I can certainly understand your reasoning. . however. . the fact remains that Lenders do look for "2" active forms of credit on your credit bureau. It is important to them and since they have the power to grant or decline, I'd say their opinion can be important.

If you don't need credit and never will then yes, feel free to cut up those cards.

[alicia]

Thanks for all the facts - and I am still as confused as before I did some research online and some people say close out the zero balance card, some say keep it. I only got one of the cards 5 months ago to get free 6 month financing and now want nothing to do with it. But at the same time, I intend to possibly apply for a student line of credit to get me through the rest of my PhD. So if I am applying for a line of credit, I shouldn't close it down because it looks like you're panicking. But then others say that you might have too much available credit. I don't know where the medium is...

P.S. I know that it's not a great idea to open a line of credit, but in all honesty it's the only way to get through the next year and a half. I am responsible with my money.

[matty's mom]

Or you can lower your available credit on the cards... I did that. Lenders are looking for you to stay within your means and use credit responsibility. So I lowered my available credit limit on the two that I have. I keep the cards for the benefits, but pay them off @ the end of the month ( I can do that now) . One of them I have not used for almost six months now. But every once and a while, I make a purchase for the points.

And line of credit as a student is sometimes the only way- I did it... as with everything responsibility/moderation is the key. Good Luck!!

[pearlyplus]

Yes, keeping them open is a good idea - to a point. It is good t show that you are responsible with the credit you have, not maxing it out etc. But you also don't want to have too much unused credit at your disposal if you go in for a new credit offer or car loan etc. I would pay off that last payment and maybe keep the card open for a while before deciding when you are ready to close it. Just cut it up as suggested if you are sure you do not want to use it again.

Smart choice and works for me as well. I meet the same situation with op, and i think i got the choice. Thanks !

[save_girl]

I disagree....all you need is 1. The "hit" your credit rating takes when you close an account is temporary. If you have a credit card, are using it responsably there really is no reason to have 3. Not to mention that temptation is hard to resist sometimes.

Some institutions consider bank issued credit cards separately from store issued credit cards when evaluating your credit score. Some, not all. So there are definitely cases where it is good to have both a store issued and bank issued cc.
As mentioned above, some institutions also look for a certain number of active cards or trade lines on your bureau report, so having more than 1 can be good in these cases as well.
However, you don't want to have too much available credit when applying for more, so it is really important to keep the limits low on any cards and loans. It is equally important to have a very good ratio of debt to limits, so pay off everything immediately or even pre-pay before things come due on your cards to keep your ratio favourable no matter when they pull your bureau or look at your account.


And, as always, if having a credit card is a temptation to spend more than you can afford, you are much better off without it, no matter how your credit score is being evaluated.

[MortgageQueen]

Some institutions consider bank issued credit cards separately from store issued credit cards when evaluating your credit score. Some, not all. So there are definitely cases where it is good to have both a store issued and bank issued cc.
As mentioned above, some institutions also look for a certain number of active cards or trade lines on your bureau report, so having more than 1 can be good in these cases as well.
However, you don't want to have too much available credit when applying for more, so it is really important to keep the limits low on any cards and loans. It is equally important to have a very good ratio of debt to limits, so pay off everything immediately or even pre-pay before things come due on your cards to keep your ratio favourable no matter when they pull your bureau or look at your account.


And, as always, if having a credit card is a temptation to spend more than you can afford, you are much better off without it, no matter how your credit score is being evaluated.

Well Said! and a balanced approach!

[Upgl8]

Think of your credit card available balances as a cup of water. If you are carrying debt and you have credit available, your glass is larger and the amount in it is a ratio of 1/2, 1/4, etc. However if you close your credit cards then that available credit reduces (the glass gets smaller) while your debt remains the same. This would mean that the debt/ratio increases and therefore you may not be as eligible for credit in the future.