Cancelling a card (re: credit score)...

Anonymous · ‎07-20-2007

Hello, to start off, I'm 25 years old, and my credit score is around 740/750.

Right now I have 5 credit cards, 4 of which I would like to keep (major cards, great rates, benefits etc).

The only card I want to cancel, is the card I have had the longest (2 years at most). It was my first credit card, and I was a college student, and I got it from 1 Financial Bank USA. This card really doesn't benefit me in the least. Has relatively high APR's compared to my other cards, and doesn't really offer any benefits for the future. Now that my credit is somewhat established, I'd like to cancel it, but from what I've read this can hurt me more than anything.

Out of the cards I have, I have generally low limits. So all of the cards total is about 10k (if that). Out of that, right now, I only have 2.5k on a one major card with a 6k limit with zero APR. This will be paid off by January of 2008. The 1st Financial Card has a 2.5k limit.

So all in all, would closing this one hurt me that bad? I'm sure it will take a hit to my credit score, but I would rather keep open only the ones I want open, and focus on those, and becoming reputable with major companies that can benefit me in the future. Even if it does hurt me a little now, would it be back to normal in a year or so with keeping a low balance (20% or less on my total credit limit), no late payments, no more credit cards and so on?

I hope this makes sense, and I appreciate and welcome any help and advice I can get.

Thank you in advance.

-Matt

Edited - Also, I had an American Express with an annual fee, and I recently upgraded to a better card with no annual fee, lower APR, etcetc. I closed the previous AE account, but it still shows me as a member from my original date, will this alter my score at all as well?

Message Edited by Matthew on 07-20-2007 06:14 PM

Anonymous · ‎07-20-2007

If the 1 Financial Bank card does not have an annual fee, you don't want to close it. Keep it in the sock drawer, and take it out once a year to charge something on it so it doesn't get closed for inactivity. It is contributing to your overall history points.

Amex typically keeps your original opening date when you transfer your card or open a new account, and that also helps your history points a bit.

Anonymous · ‎07-20-2007

That's what I thought.

So as much as I want to close it, I should do my best to put it away and not worry about it?

For how long? Forever?

How long does it take before an account becomes inactive?

Message Edited by Matthew on 07-20-2007 07:04 PM

Anonymous · ‎07-20-2007

@Anonymous wrote:
That's what I thought.
So as much as I want to close it, I should do my best to put it away and not worry about it?
For how long? Forever?
How long does it take before an account becomes inactive?

Inactivity depends on the creditor. Crown Jewelers will close accounts for inactivity after 6 months. Store cards may wait for a couple of years before closing (some wait much longer). I know Amex has closed accounts for inactivity, but I don't know their typical timeframe.

I would keep the 1 Financial Bank card sockdrawered for at least a few years. When your second-oldest account gets close to double digits in age, then it won't matter so much if you cut 1FB loose. But with a relatively young group of accounts like you have now, you want to keep your oldest account age and your average age as high as possible. History (oldest age and average age) is the factor that takes the longest to replace.

fused · ‎07-20-2007

@Anonymous wrote:
@Anonymous wrote:
That's what I thought.
So as much as I want to close it, I should do my best to put it away and not worry about it?
For how long? Forever?
How long does it take before an account becomes inactive?

Inactivity depends on the creditor. Crown Jewelers will close accounts for inactivity after 6 months. Store cards may wait for a couple of years before closing (some wait much longer). I know Amex has closed accounts for inactivity, but I don't know their typical timeframe.

I would keep the 1 Financial Bank card sockdrawered for at least a few years. When your second-oldest account gets close to double digits in age, then it won't matter so much if you cut 1FB loose. But with a relatively young group of accounts like you have now, you want to keep your oldest account age and your average age as high as possible. History (oldest age and average age) is the factor that takes the longest to replace.

I'll add to the confusion. Open or closed, CC TLs age and are scored the same. I know this seems to be hard to believe but it's true.

Anonymous · ‎07-20-2007

Haha, yes, that added to the confusion.

I'm pretty much lost now.

fused · ‎07-20-2007

The only thing you need to concern yourself with when closing a CC, short history or not, is the negative effect it could have on your cumulative Util% on your revolving accounts. There are two UTIL% calculations: one for each CC and a second one which is cumulative and calculates your total UTIL%. Both are very important.
Example:
Card 1: CL 5K, balance 1K = 20% util
Card 2: CL 3K, balance 800 = 27% util
Card 3: CL 2K, balance 100 = 5% util
Add all three together and cumulative UTIL% is 19%
Not bad but again not ideal. Let's see what happens if you close one of them.
Close Card 2:
Total CL is 10K - 3K = 7K total CL
Cumulative: 7K CL, balance 3K = 43%
Getting worse!
Closed and opened CC TLs are weighted and scored equally by FICO. You will not be punished by simply closing a CC as long as it has a $0 balance and has no derogs reporting with it and your cumulative Util% stays at 1-9%. You might to try and get CLIs on the cards you plan to keep open before you close the card you don't want. This will help you to lower both util%'s I hope this helps clear up the confusion.

Message Edited by fused111 on 07-20-2007 05:40 PM

Message Edited by fused111 on 07-20-2007 06:13 PM

fused · ‎07-20-2007

Matthew:

One more thing! Open positive revolving TLs can report indefinitely whereas the same positive closed TLs will fall off your reports after 10 years. So in the long-term, closing the card you don't want might ding your scores 10 years from now.

Anonymous · ‎07-20-2007

Yes, the confusion has been cleared up.

Thank you to all who have helped, I feel like I understand how it works a lot better now.

So for now, I will simply not use it, but make sure it doesn't become inactive, and pay it off in full when I do use it.

fused · ‎07-20-2007

Matthew wrote:
Yes, the confusion has been cleared up.
Thank you to all who have helped, I feel like I understand how it works a lot better now.

So for now, I will simply not use it, but make sure it doesn't become inactive, and pay it off in full when I do use it.

GL to you and congrats on your excellent scores, however which way you go.

Message Edited by fused111 on 07-20-2007 07:59 PM