Credit card increasing interest rates, should I close it?

[Anonymous]

hi guys, i was wondering if anyone can give me some advice on a credit card. I've tried a few people but got mixed responses. I have been with this credit card company for about 2 years with zero balance. I got a letter from them a few days ago saying that it will increase my interest rates due to extraordinary changes in the economic enviroment. I'm not planning to use this card anytime soon now that i've paid it off. So my question is, should I just close it for good or just keep it but not use it. If I'm not mistaken, I've heard from Suze Orman Show that closing a credit card account that you've been with could lower your fico score. How long is considered a long history? Could closing this account hurt my fico score? Any advice would be greatly appreciated.

[Uborrow-Upay]

Don't close the card.  The interest rate could be 100% and it wouldn't matter to you, because you owe nothing on the account.

This card contributes to your length of credit history.  Every so often, charge something to it and then pay it off in full so the card doesn't close for inactivity.

Depending on your personal situation, such as overall length of credit history and number of other accounts, you would want to keep this account open, IMO even if it has an annual fee (you didn't mention).  With the credit climate being what it is, don't burn your bridges...there may be limited opportunities for credit in the future.

All in all, I feel that the rate hikes are a general CYA reaction by the credit card companies, and that the best of their customers will see relief in the form of endless promo offers in the future.  The CCC just don't want to be locked in to subprime accounts by the new legislation to take effect in 2010.

Welcome to the forum, uscballer9! 

[cobaltnv]

ucsballer,

  I would read the closing credit cards thread which may be found in the link in my signature below. The answer to your question, as U-borrow, mentioned depends on how the rest of your credit report looks. If you have only a couple of cards I would definitely keep this card open. If you have a number of cards (say above 5 or 6) and this card has an annual fee--get rid of it. I have found, in my experience, that annual fees are almost never worth it. One exception is for people rebuilding credit. Even rewards cards are often only marginally worth it, and only if you charge large amounts each month and PIF.

As far as hurting your Fico score; the only immediate affect closing a credit card has is to lower your available credit (and therefore raise your utilization). If you have balances on any card your utilization will go up and your score down (how much depends on teh change in utilization). Your average age of accounts will not change as the card will remain on your credit report for up to 10 years. After the card drops off in ~10 years your score may change depending on your current average age of accounts relative to the age of the card falling off.

Sorry to be so long winded. 

[Anonymous]

thank u very much to all for your advice. i will certainly look into it.

[cobaltnv]

No problem. Good luck and let us know how it goes.

[Anonymous]

Dont close the card. Keep the card and use it for small amounts every month and pay it in full every month. As long as you don't carry a balance you will not be charged interest.

[Junejer]

I recently got a letter from one of my rewards cards, US Airways, that they are raising the rate to 25+%. That's fine, I have my gym membership coming from there and pay it off within a day or two of it showing up. That's all they will get from me. I will never pay them interest on the card.

[Anonymous]

As long as you are not having to pay any high fee's or annual fee's don't close it. As many others mentioned to you to keep it open, charge a little on it every now and then and pay it off. Your right in what Suze Orman says about closing cc. Number one 30% of your fico score is based on all your revolving credit added together-so the more revolving CL you have the more you have to put on your cards and it not lower your fico score, and it will also lower your age of credit history if you close it. So as long as they aren't charging you anything-keep it open.

I learned the hard way. Two of my CC CL got lower during this recession we are going through. Had a perfect credit rating with them both-no lates and kept my limits low. Couldn't understand why they would want to lower a good customer's CL. So I got pissed and closed one-the other one just got lowered this week. After I heard Suze Orman mention over the weekend on the Today show and she explained it about the 30% of all revolving CL added together is what your debt to ratio is based on and determines your fico score. I didn't relize that on the other CC in time. So I burnt a bridge that I will probably want to cross again at a later time-it was a Wal Mart CC. Who don't shop at Wal Mart. So my getting pissed and closing the cc, only hurt myself.

[Junejer]

Open AND closed accounts count toward AAoA. Closed accounts may remain up to 10 years from date of closing.

[MattH]

---

@Uborrow-Upay wrote:

Don't close the card.  The interest rate could be 100% and it wouldn't matter to you, because you owe nothing on the account.

This card contributes to your length of credit history.  Every so often, charge something to it and then pay it off in full so the card doesn't close for inactivity.

Depending on your personal situation, such as overall length of credit history and number of other accounts, you would want to keep this account open, IMO even if it has an annual fee (you didn't mention).  With the credit climate being what it is, don't burn your bridges...there may be limited opportunities for credit in the future.

All in all, I feel that the rate hikes are a general CYA reaction by the credit card companies, and that the best of their customers will see relief in the form of endless promo offers in the future.  The CCC just don't want to be locked in to subprime accounts by the new legislation to take effect in 2010.

Welcome to the forum, uscballer9! 

---

CC companies are going wacko these days, simultaneously raising rates even for their über-prime customers and offering low-rate balance transfers to the same people.  For instance I've been an American Express customer for over 25 years with an excellent payment history, and recently they raised my APR, which has no practical effect because I'm never gonna pay it but still irritates me.  My lowest CC rate at the moment is my Chase card, at 5.24% for purchases.  My wife and I both have Citi cards, and each of us regularly feeds balance transfer offers from them to the shredder.

We also get frequent pre-approval offers from Cap One.  Can't their computers be programmed to notice it's been over 10 years since either of us signed up for another credit card?