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Credit gurus - how would cancelling a credit card effect my rating?

B

bernse

Diamond Member
I have 2 Master Cards and 1 Visa. I want to cancel one of them. I've had both for around 3-5 years and carry not credit balances.

However, each of my 3 cards have credit limits in excess of $30,000 and I don't want that much open credit. I've called the CC companies and told them to lower it... which they did but it always seems to get raised again. So, I decided I want to cancel one. Besides, I don't need 2 Mastercards anyhow. I hate them sending me "purchase checks" every month too.

Question is this: Would cancelling a Credit Card have a measurable "negative" effect on my credit rating? Would it help increase my credit rating? I have very good credit as it is but don't want to hurt it if I can avoid it, of course.
 
That doesn't answer my question.

Like I said, they keep upping my limit and mailing me purchase cheques. I've asked them to stop and they still do it, so screw it, I want to cancel it. I want to know (if someone here does know) what it will do.
 
DO NOT cancel your first credit card.
I had my first credit card for the longest time and I decided to cancel it because I had other credit cards i used more in the recent year.
Boy was I surprised when during my next credit check, my credit history was drastically shortened because my first credit card acct was closed.
 
Originally posted by: mcvickj
This article should answer your question. http://www.bankrate.com/brm/news/cc/20020814h.asp
Click to expand...

Thanks for the link!

Unfortunately, it kind of contradicts itself a bit.

First it says this:
Canceling a large amount of unused credit could actually hurt your credit score.

Credit-scoring models look at a number of factors when calculating your score, including the result of the following formula: The total amount of debt on credit cards and revolving accounts divided by the total amount of debt available on those accounts.

This formula results in a fraction less than one. The lower the fraction the better. A score of one would mean your outstanding debt equals your available credit and you've maxed out your cards.

Let's look at an example. Let's say you've got $5,000 of debt and $15,000 in credit lines. By dividing 5,000 by 15,000 you get one-third. You're using one-third of the credit available to you.

Now let's say you cancel an unused credit card with a $5,000 limit. You've still got $5,000 of debt but only $10,000 in credit lines. By dividing 5,000 by 10,000 you get one-half. You're now using one-half of the credit available to you.
Click to expand...
So, ideally if you owe $0 on your credit card would good for you to keep it open then, right? You couldn't get a better ratio than that.

Well, then it says this:
If your credit card balance is zero, go ahead and close as many unused accounts as you want. As long as your credit cards are balance-free, it won't hurt your credit score a bit. So call those card issuers and cut away.
Click to expand...
So.... huh?
 
I noticed that after I posted the link. I am just as confused as you are. I was told to keep them open. It is a postive for your credit raiting because it will have a long history with a good payment record. I remember reading a pretty good post. I think it was on FatWallet. I will have to see if I can find the link again.


EDIT: I found the link. http://www.fatwallet.com/forum...52&threadid=159097
 
Dont forget that it could hurt u in the short run b/c of avg amt of credit history... closing an old card will lower that avg of open revolving credit history. Over time it will go back up though.
 
Don't cancel any of your cards. Depending on the age of the credit line, you could end up hurting your score. Also, it's a good thing that you have high credit lines. No one is forcing you to use any of the credit, but having a higher limit makes your credit to debt ratio look better and is better for your score. If you ever have to apply for a loan and they tell you you have too much outstanding credit, you can always call to have some of the lines lowered a bit then.
 
Originally posted by: sandmanwake
Don't cancel any of your cards. Depending on the age of the credit line, you could end up hurting your score. Also, it's a good thing that you have high credit lines. No one is forcing you to use any of the credit, but having a higher limit makes your credit to debt ratio look better and is better for your score. If you ever have to apply for a loan and they tell you you have too much outstanding credit, you can always call to have some of the lines lowered a bit then.
Click to expand...

:thumbsup:
 
Thanks for starting this thread, I was just thinking of this question. 🙂

Originally posted by: bernse
Originally posted by: mcvickj
This article should answer your question. http://www.bankrate.com/brm/news/cc/20020814h.asp
Click to expand...

Thanks for the link!

Unfortunately, it kind of contradicts itself a bit.

First it says this:
Canceling a large amount of unused credit could actually hurt your credit score.

Credit-scoring models look at a number of factors when calculating your score, including the result of the following formula: The total amount of debt on credit cards and revolving accounts divided by the total amount of debt available on those accounts.

This formula results in a fraction less than one. The lower the fraction the better. A score of one would mean your outstanding debt equals your available credit and you've maxed out your cards.

Let's look at an example. Let's say you've got $5,000 of debt and $15,000 in credit lines. By dividing 5,000 by 15,000 you get one-third. You're using one-third of the credit available to you.

Now let's say you cancel an unused credit card with a $5,000 limit. You've still got $5,000 of debt but only $10,000 in credit lines. By dividing 5,000 by 10,000 you get one-half. You're now using one-half of the credit available to you.
Click to expand...
So, ideally if you owe $0 on your credit card would good for you to keep it open then, right? You couldn't get a better ratio than that.

Well, then it says this:
If your credit card balance is zero, go ahead and close as many unused accounts as you want. As long as your credit cards are balance-free, it won't hurt your credit score a bit. So call those card issuers and cut away.
Click to expand...
So.... huh?
Click to expand...

Do you have debt?
If yes, keep the credit card
If no, get rid of it

That's what that is saying. Although other opinions in this thread seem to say that you should just leave them open anyway. I guess it doesn't hurt nor help you to get rid of credit cards if you have no debt.
 
Originally posted by: Triumph

Do you have debt?
If yes, keep the credit card
If no, get rid of it

That's what that is saying. Although other opinions in this thread seem to say that you should just leave them open anyway. I guess it doesn't hurt nor help you to get rid of credit cards if you have no debt.
Click to expand...
No, that's not what it's saying. That's what you are inferring it says, because what it actually says contradicts itself.

After doing more reading up on this, even though I owe a big fat goose-egg to the credit card companies, I think I will keep it. I may call the one that pi$$es me off (sending the cheques, upping the credit the most) and threaten to cancel it if they don't stop doing that. I'll see if that help.
 
It would hurt more to close it then it would to keep it. Even if you aren't using it, you have a 3 tradelines and should you need financing in the future, having only 2 cards WILL hurt you because they will say you DO NOT have enough credit.
 
Originally posted by: sandmanwake
Don't cancel any of your cards. Depending on the age of the credit line, you could end up hurting your score. Also, it's a good thing that you have high credit lines. No one is forcing you to use any of the credit, but having a higher limit makes your credit to debt ratio look better and is better for your score. If you ever have to apply for a loan and they tell you you have too much outstanding credit, you can always call to have some of the lines lowered a bit then.
Click to expand...

It says in another article on that site (and I've read elsewhere) that if you have a great deal of outstanding credit, you might be seen as a risk because available credit means available means to bury yourself with a spending spree. That makes sense to me. A reasonable amount of credit is one thing ($15,000-30,000) but being near $100,000 really doesn't make much sense to me unless you have a sky-high salary.

Credit scores are a bunch of bullsh!t, as is the whole credit reporting racket.
 
Originally posted by: bernse
Originally posted by: Triumph

Do you have debt?
If yes, keep the credit card
If no, get rid of it

That's what that is saying. Although other opinions in this thread seem to say that you should just leave them open anyway. I guess it doesn't hurt nor help you to get rid of credit cards if you have no debt.
Click to expand...

No, that's not what it's saying. That's what you are inferring it says, because what it actually says contradicts itself.
Click to expand...

Yes it is what it is saying. If you have debt, keep your debt/credit ratio low (less than 1). If you don't have debt, your debt/credit ratio is automatically 0 so it doesn't matter how much open credit you have. Really, it isn't that difficult.
 
The other thing that they look at is your POTENTIAL DEBT. If you have 100k in credit limits, you could go out at any time and fill those up. Even if you currently have a really low balance, that doesn't always matter because you have the POTENTIAL to go get 100k in debt immediately. That's the main reason for keeping your limits lower and getting rid of the extra cards.

Lots of banks or mortgage companies don't want to give you a huge loan when you also have huge credit limits because what if you got the loan and then maxed out your cards. Who would you pay....
 
Originally posted by: cchen
Yes, as said in dozens of previous threads, it can hurt your credit rating.
Click to expand...

The onyl thing that hurts your credit rating is not paying your bills.

PERIOD.

I NEVER HAD DEBT. I NEVER HAD A CREDIT CARD. And when I went o buy my first home I had an EXCELENT credit raitng.

PERIOD!
 
just don't use it... keep the available credit, your debt ratio will be better. and i made the mistake of closing my first card as well.. luckily the next card was only a few months away anyway.
 
I've seen cases where the bill is ignored because the person never used the card and thought they owed zero, but there were fraudulent purchases (usually small amounts such as porn subscriptions) made. Since no minimum payments were made, credit history was trashed. If you're a forgetful person, you might indeed want to close the account.
 
Originally posted by: IHateMyJob2004
Originally posted by: cchen
Yes, as said in dozens of previous threads, it can hurt your credit rating.
Click to expand...

The onyl thing that hurts your credit rating is not paying your bills.

PERIOD.

I NEVER HAD DEBT. I NEVER HAD A CREDIT CARD. And when I went o buy my first home I had an EXCELENT credit raitng.

PERIOD!
Click to expand...

Wow. Amazing. The experience of one lone individual, who never even had a credit card or a loan, knows exactly how the credit bureaus do their magical calculations.
 
i don't want my first (and only) credit card anymore. i get no benefits from it. i'd love to cancel it and get something like an amazon visa that enables me to get points for future purchase, or something with frequent flyer miles, but i guess i'll never have that opportunity unless i apply for an additional card (which i don't particularly wish to do).

is it really bad to cancel your first credit card?
 
Originally posted by: tami
i don't want my first (and only) credit card anymore. i get no benefits from it. i'd love to cancel it and get something like an amazon visa that enables me to get points for future purchase, or something with frequent flyer miles, but i guess i'll never have that opportunity unless i apply for an additional card (which i don't particularly wish to do).

is it really bad to cancel your first credit card?
Click to expand...

Yes. Canceling your first card is one of the worse things you can do to your credit
 
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