How to close credit accounts while taking a minimal hit?

[PhillyGoodGuy]

Hello,

In the past 2 or 3 years, I've really worked hard at improving my credit. I started out with scores in the mid 500s, now I have a Transunion score of 695 and Equifax score of 694. In order to increase my score rapidly, I had to start out taking cards with huge APRs and ridiculous annual fees. Now, I am eligible for better credit cards, but I don't want to close too many accounts too quickly. At the same time, I don't want to have to keep paying these very high APRs and fees. I am sure I can get better deals/rewards/APR if I open new accounts, but I don't to open too many/close at the same time.

I've already spoken to each individual creditor and they are unwilling to neogotiate a new APR on the existing account. They want me to open a new account (Chase) and transfer all of the existing balance on there, then close the old account. They said previously they would be willing to discuss a new APR but due to the new consumer protection laws coming into effect, they have halted that. I asked for a description of these laws, and none of these seem to benefit people who pay on time, rather it seems to protect those already in crisis.

I was looking for some advice on...

- The ideal number of accounts to keep open

- What NOT to do in terms of closing accounts

- Whether I should keep all accounts open or not

- How I can get my score into the 760+ range (or do I just have to be patient?)

My cards:

Visa #1 - APR 25.24% - Account Age: 25 mos.

Visa #2 - APR 17.93% - Account Age: 60 mos.

Visa #3 - APR 23.90% - Account Age: 28 mos.

Department Store Card - APR 23.99% - Account Age: 28 mos.

Mastercard #1 - APR 26.33% - Account Age: 28 mos.

Mastercard #2-  APR 2.99% (intro rate) - Account Age: 6 mos.

I can post credit limits/balances if that would help, but I don't think its relevant to my question.

Any advice would be appreciated. 

Thanks in advance!

Pablo

[Jazzzy]

You will not take a hit when you close a credit card unless it creates a problem with your utilization percentage. Do you carry balances on these cards? If you do, then you would want to find a replacement card before you close one of your present cards.

When you close a card with a zero balance, it remains on your credit report for approximately the next 10 years. It will still be counted in your history and in your average age of accounts. If you close a card that still has a balance on it, the credit line will continue to count as long as you have a remaining balance. When the balance reaches zero, the credit line will no longer count towards your total credit lines for utilization purposes.

When you open a new card, you may take a minor point ding for a new inquiry, a small hit for a new account (most of which you will gain back in 6 months to a year), and it will lower your average age of accounts.

Take your time. Find a new card you would like to have based on APR and fees. Apply for it. When successful, decide which of your present accounts is the most costly to you in terms of APR and fees. Eliminate that one. Work towards quality.

There are still plenty of cards around without annual fees. There are good rewards cards out there with no fees. That may change in the future, but...for now...they still exist. In my opinion, too many people hang on to bad cards with high fees because everyone has been told to never close a credit card. Just do it selectively, and gradually upgrade. You may have to take a baby step backwards in your FICO score in order to take a giant step forward.

There is a good explanation about closing credit cards in the Credit Card forum. Do a search for it in that forum.

[PhillyGoodGuy]

Lynette - thanks for the advice.

A follow-up question or two: I am definitely willing to take a step back in order to go forward. But it is difficult for me to ascertain just how many cards/accounts to do this with. In my situation, out of 7 accounts, only 1 has a reasonable fee/APR structure. I could close 6 accounts, and open 3-4 new accounts with better fee/APR/reward structures, but I don't want take TOO much of a hit.

 So where do I start? 1 bad card for 1 good card? 2 bad cards for 1 good card? Do this once per year? Less often? More often?

I ran the search as you suggested and believe I found the post you mentioned, but it doesn't seem entirely applicable to my situation. 

Lastly, could you clarify this for me?

"When you close a card with a zero balance, it remains on your credit report for approximately the next 10 years. It will still be counted in your history and in your average age of accounts. If you close a card that still has a balance on it, the credit line will continue to count as long as you have a remaining balance. When the balance reaches zero, the credit line will no longer count towards your total credit lines for utilization purposes."

So...if I close two of my accounts that are two years old, they will remain on the report until 2020? I'm not sure I understand this, as everything I have read in this forum has stated closing accounts reduces the average age of all accounts. If this could be done, wouldn't consumers rapidly close and open new accounts as soon as their credit score increased incrementally?

[MarineVietVet]

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@PhillyGoodGuy wrote:

Lynette - thanks for the advice.

A follow-up question or two: I am definitely willing to take a step back in order to go forward. But it is difficult for me to ascertain just how many cards/accounts to do this with. In my situation, out of 7 accounts, only 1 has a reasonable fee/APR structure. I could close 6 accounts, and open 3-4 new accounts with better fee/APR/reward structures, but I don't want take TOO much of a hit.

 So where do I start? 1 bad card for 1 good card? 2 bad cards for 1 good card? Do this once per year? Less often? More often?

I ran the search as you suggested and believe I found the post you mentioned, but it doesn't seem entirely applicable to my situation. 

Lastly, could you clarify this for me?

"When you close a card with a zero balance, it remains on your credit report for approximately the next 10 years. It will still be counted in your history and in your average age of accounts. If you close a card that still has a balance on it, the credit line will continue to count as long as you have a remaining balance. When the balance reaches zero, the credit line will no longer count towards your total credit lines for utilization purposes."

So...if I close two of my accounts that are two years old, they will remain on the report until 2020? I'm not sure I understand this, as everything I have read in this forum has stated closing accounts reduces the average age of all accounts. If this could be done, wouldn't consumers rapidly close and open new accounts as soon as their credit score increased incrementally?

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Yes they will report for about 10 years from the date of closure if they are in good standing. So simply closing an account will not reduce the AAoA. I"m not sure where you read that closing accounts reduces the AAoA. If a closed account is deleted early for whatever reason then that could affect the AAoA. That's why it's stressed over and over here to never try and get a closed account in good standing removed early.

From a BK years ago to:
7/09 TU-742 EQ- 779
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802

You can do the same thing with hard work.

[Jazzzy]

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@PhillyGoodGuy wrote:

Lynette - thanks for the advice.

A follow-up question or two: I am definitely willing to take a step back in order to go forward. But it is difficult for me to ascertain just how many cards/accounts to do this with. In my situation, out of 7 accounts, only 1 has a reasonable fee/APR structure. I could close 6 accounts, and open 3-4 new accounts with better fee/APR/reward structures, but I don't want take TOO much of a hit.

 So where do I start? 1 bad card for 1 good card? 2 bad cards for 1 good card? Do this once per year? Less often? More often?

I ran the search as you suggested and believe I found the post you mentioned, but it doesn't seem entirely applicable to my situation. 

Lastly, could you clarify this for me?

"When you close a card with a zero balance, it remains on your credit report for approximately the next 10 years. It will still be counted in your history and in your average age of accounts. If you close a card that still has a balance on it, the credit line will continue to count as long as you have a remaining balance. When the balance reaches zero, the credit line will no longer count towards your total credit lines for utilization purposes."

So...if I close two of my accounts that are two years old, they will remain on the report until 2020? I'm not sure I understand this, as everything I have read in this forum has stated closing accounts reduces the average age of all accounts. If this could be done, wouldn't consumers rapidly close and open new accounts as soon as their credit score increased incrementally?

---

There are two schools of thought on how rapidly to apply for new credit. Some forum members do "app sprees" and apply for a few (or many) new credit cards at one time. That way the inquiries from those companies will all fall off your report together in two years. FICO counts them for scoring purposes for one year, but they remain on your report for two years for potential creditors to see. Others apply more gradually. I added a new card in May and one in August, for example. I'm more of the gradual school of thought. I don't want to waste any inquiries on creditors who deny me because they believe I'm looking for too much credit all at one time. In your situation, you could get a new card every six months and then get rid of two bad ones.

Your closed cards will stay on your reports for approximately 10 years. I have a Penney's card, for example, that I closed in 2000. It will fall off my reports next year in 2010. They can fall off sooner, but mine have lasted the 10 years. At that point...when the closed account drops off...then it can no longer be your oldest account or count in your average age of accounts. At that point...10 years from now...that would be considered a negative. In that decade, however, you will have replaced the bad card with a good one, and life goes on. Another reason people are told not to close cards is if they carry balances on their other cards. Your utilization percentage could rise if you close a credit line and don't open another one. That's why, if you carry balances, you might want to get the new card before you close one you don't want any longer.

I'd recommend that you decide on a new card you want. Decide on a bad one you don't want...and make the switch. Everyone's FICO scores are affected differently. There are a lot of moving parts that go into a FICO score, so no one can tell you exactly what will happen. With credit card laws changing, APRs have risen, even for good customers. Annual fees will likely be more common...but there are still good cards available. In the credit card forum you will find every kind of opinion on various cards.

[Anonymous]

Just remember that you MAY want to space out app'ing for new cards.  You do not have to space out closing accounts (unless you carry a balance and are worried about utilization).  For FICO scoring purposes, they want you to have at least one bank/national cc.  As long as you have that, you can close cards, as many as you want, whenever you want.

I closed three cards in the last several months with no adverse action - and did not open any new accounts to replace them.

DH also closed three cards recently with the same results.

Good luck with your efforts.