Does closing a credit card hurt credit rating? - Tilted Forum Project Discussion Community

Jimellow · 03-09-2006, 11:29 AM

I've been using a Citi College rewards card for over a year now, and recently applied and was approved for a regular Citi rewards card..

However, I currently have $20+ in earned cash back and am regretting my decision to apply for a better card. If I were to cancel my new card before even using it, would my credit rating be affected negatively?

I pay off balances in full every month, and was intending to switch to the new card, mostly to get the better APR.. But I never carry a balance, so that realistically is not an issue at this point in my life.

crossova · 03-09-2006, 12:55 PM

Thats a good question.
*waits for a professional response*

intecel · 03-09-2006, 01:08 PM

I want to know the same thing.. I have 9 cards that have 0 balances on them. I'm not sure if it will hurt my credit to close them since these are my longstanding cards. I have 3 cards with balances, but they're all new within a year. Info on thsi would be great.

snowy · 03-09-2006, 01:17 PM

Here is an article I found regarding closing credit card accounts from MSN Money:

Quote:

Cancel a credit card -- the right way
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A paid-off card that's still on your credit report as active can hurt you as you try for a mortgage. Here are 4 critical steps.

By Holden Lewis, Bankrate.com

There's always a right way and a wrong way to do things, and that goes for canceling a credit card.

Whatever your reason for getting rid of a credit card (more on that later), you'll want to make sure you do it thoroughly and that no harm is done to your credit report.

First, don't try to cancel a card while you're paying the balance. Cancel the card only after you have paid off the balance in full.

"There isn't a need to cancel that account until you're through with it," says Jean Brannan, community outreach coordinator for Consumer Credit Counseling Service in West Palm Beach, Fla. She adds that you have to employ self-discipline and stop using a card while you're paying off the balance.

OK, let's say you have paid off a card's balance and you want to cancel the account. Brannan suggests that you do the following, in order:

* Notify the card issuer by phone.
* Follow up by notifying the card issuer in writing.
* Get a copy of your credit report and make sure it's accurate.
* Repeat, if necessary.

Notify the issuer by phone
Your issuer's customer-service number will be printed on the back of the card, on the monthly statement, or both. Call that number, confirm that your balance is zero, and notify the customer-service representative that you're canceling the card. If you truly intend to cancel the card, hold firm if the rep tries to talk you out of it by promising lower rates or fees.

If you can, Brannan says, find out the name of someone to send a confirmation letter to. At the least, ask for the address.

Follow up with a letter
Write a short letter to the card issuer. "If you can get a name so you can send it directly to someone, that is better," Brannan says.
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The letter should say that you're closing your account and that you want your credit record to reflect the fact that you requested that the account be closed. Provide your name, address and account number.

Send the letter by certified mail or return receipt requested. That way you can prove that the card issuer received your letter, Brannan says.

Then, wait a month.

"You can allow as much as 30 days for the closing of your account," Brannan says. "Then get a copy of your credit report and make sure it says 'Closed at customer's request' and that (the account) actually has been taken off your credit report."

Check your credit report
You don't want your report to say the account was "closed by creditor," because that reflects negatively on you.

If the card issuer mistakenly reported that the issuer, not you, closed the account, you'll have to return to the beginning. Call the customer-service department to report the mistake, follow up with a letter sent by certified mail (include a copy of the letter you wrote requesting that the account be closed), and check your credit report again.

"Remember that a credit report is your credit history," Brannan says. "The information is submitted by lenders, but it's your individual responsibility to make sure it's correct."

Believe it or not, it's not the credit bureau's responsibility to make sure that your credit report is correct. Credit bureaus report what creditors tell them. So if your credit report is inaccurate, don't ask the credit bureau to fix it. Ask the creditors to correct inaccuracies and update the credit bureaus.

Experts recommend that you check your credit report annually to spot inaccuracies and detect identity-theft problems. Check your credit report before buying a house or car so you can correct any problems before applying for a loan.

Why cancel a card
"One of the reasons people would want to close out credit cards is if they want to purchase a home," Brannan says. "To have a lot of available credit is not to your advantage."

In other words, if you have, say, three cards with low or no balances, a mortgage lender considers that "potential debt." If you have a lot of potential debt, a mortgage lender might not be willing to lend all the money you need because you could take out a mortgage and then run up your credit cards, endangering your ability to pay all your debts.

And some people get in over their heads in debt and realize that they need to rid themselves of the temptation of credit cards.

"You might want to close a credit card because you've re-evaluated your budget and you knew you were overextended," Brannan says. "Or if you are in debt and trying to get out of debt."

And there's nothing wrong with canceling a card because it's a bad deal.

Whatever the reason for canceling a credit card, it pays to do it right.

Hope that helps.

ngdawg · 03-10-2006, 05:17 AM

I'm kind of surprised because when we went to refinance our mortgage, the lender told us they look at the total amount of available credit vs the amount owed-the larger the gap, the better your rating as it shows you have the smarts to not overextend. (I had taken a credit card that was for $9k and since we owed about $4k, had the card reduced to $5k, which later I was told was a mistake-that showed a higher percentage owed) Our credit rating at the last refinance was about 632.

amonkie · 03-10-2006, 06:00 AM

What they told you dawg is common practice for evaluations - it is a tool I myself used - If an account was closed and there was not a pattern of late - very late - 120 days late payments on account, most lenders that I have interacted with make the assumption an account was closed by the customer.

ngdawg · 03-10-2006, 06:25 AM

That I know since I worked at a bank loan center and did credit reports, but the part that doesn't jibe is One of the reasons people would want to close out credit cards is if they want to purchase a home," Brannan says. "To have a lot of available credit is not to your advantage."
That should really be, I would think, 'to have a lot of outstanding credit debt'.
The best credit reports are those that show past debt paid in full on time (banks don't even like seeing debt paid off early as a pattern).
As everyone here probably is aware, we were in such serious financial dires as to consider bankruptcy, instead we went to increase our equity loan to double what it was and got the loan, no problems, reason being that even though we had mounting credit debt, I kept the payments current and many of the credit lines open and unused. When choosing what to do when debt mounts, it's actually a better deal to allow such things as utilities to go past due as they do not report to credit bureaus unless suit is filed or the outstanding balance is turned over to a collection agency-that's when you know you're in deep doo-doo. Pay housing and credit balances first to keep the ratings decent.

Jimellow · 03-10-2006, 06:41 AM

Quote:

Originally Posted by ngdawg

(I had taken a credit card that was for $9k and since we owed about $4k, had the card reduced to $5k, which later I was told was a mistake-that showed a higher percentage owed) Our credit rating at the last refinance was about 632.

Is the reason this affected your credit rating negatively, due to you being 50% over your new credit limit? I read somewhere that such an occurence can in fact hurt your rating, but the whole credit scoring system seems to be obscure, so it's tough to distinguish between valid facts and fiction.

I called the company yesterday, and tried to cancel before my card arrived (heh).. They said I have to wait until I receive the card, and then call them to cancel it, which makes sense.

Do "closed cards" stay/show up on my credit report forever, or will it fall off after a few years? My main concern is that they credit (heh) me with closing the account, so that my credit rating isn't negatively affected.

I should have never applied for this new card, and would like to "make it go away" as easily and completely as possible.

ngdawg · 03-10-2006, 06:54 AM

Quote:

Originally Posted by Jimellow

Is the reason this affected your credit rating negatively, due to you being 50% over your new credit limit? I read somewhere that such an occurence can in fact hurt your rating, but the whole credit scoring system seems to be obscure, so it's tough to distinguish between valid facts and fiction.

I called the company yesterday, and tried to cancel before my card arrived (heh).. They said I have to wait until I receive the card, and then call them to cancel it, which makes sense.

Do "closed cards" stay/show up on my credit report forever, or will it fall off after a few years? My main concern is that they credit (heh) me with closing the account, so that my credit rating isn't negatively affected.

I should have never applied for this new card, and would like to "make it go away" as easily and completely as possible.

Yes, that was the reason it was a negative-the ratio of owed to available became lower.
Closed cards stay on for an amount of time-used to be up to two years-it really depends on the credit company's reporting-I've seen 0 balances on credit reports that were years old(on mine there was a Macy's line of credit that had been closed that was over 5 years old)

Jimellow · 03-10-2006, 07:23 AM

Quote:

Originally Posted by ngdawg

Yes, that was the reason it was a negative-the ratio of owed to available became lower.
Closed cards stay on for an amount of time-used to be up to two years-it really depends on the credit company's reporting-I've seen 0 balances on credit reports that were years old(on mine there was a Macy's line of credit that had been closed that was over 5 years old)

Thanks for the reply.

Providing the close is indicated to be done by the user at a balance of 0, I gather things will all be kosher..

abscondo · 03-26-2006, 08:01 AM

Don't close card accounts immediately before applying for credit (mortgage, car loan, etc.), because there will be a short-term negative impact -- your debt ratio actually increases.

Also, make sure they note that the account was closed at your request. Otherwise someone could leap to the wrong conclusion about you.

LeviticusMky · 03-27-2006, 10:26 AM

Thanks, I've been wondering about his recently.

Had a 500 dollar credit card from early college days sitting around with a zero balance for about a year now. Probably gonna get rid of it.

catback · 03-28-2006, 07:57 AM

I've read you should wait to close credit accounts until after you make a major purchase (home/car) if you had such a purchase in mind. Their reasoning is if you close an old credit card your credit history may appear to be shorter than it is, thus affecting your credit score. Also as ngdawg found out having your debt be more than 50% of your credit limit looks bad to creditors.

03-09-2006, 11:29 AM	#1 (permalink)
Jimellow Junkie	Does closing a credit card hurt credit rating? I've been using a Citi College rewards card for over a year now, and recently applied and was approved for a regular Citi rewards card.. However, I currently have $20+ in earned cash back and am regretting my decision to apply for a better card. If I were to cancel my new card before even using it, would my credit rating be affected negatively? I pay off balances in full every month, and was intending to switch to the new card, mostly to get the better APR.. But I never carry a balance, so that realistically is not an issue at this point in my life. __________________ Desperation is no excuse for lowering one's standards.

03-10-2006, 05:17 AM	#5 (permalink)
ngdawg peekaboo Location: on the back, bitch	I'm kind of surprised because when we went to refinance our mortgage, the lender told us they look at the total amount of available credit vs the amount owed-the larger the gap, the better your rating as it shows you have the smarts to not overextend. (I had taken a credit card that was for $9k and since we owed about $4k, had the card reduced to $5k, which later I was told was a mistake-that showed a higher percentage owed) Our credit rating at the last refinance was about 632. __________________ Don't blame me. I didn't vote for either of'em.

03-10-2006, 06:00 AM	#6 (permalink)
amonkie Drifting Administrator Location: Windy City	What they told you dawg is common practice for evaluations - it is a tool I myself used - If an account was closed and there was not a pattern of late - very late - 120 days late payments on account, most lenders that I have interacted with make the assumption an account was closed by the customer. __________________ Calling from deep in the heart, from where the eyes can't see and the ears can't hear, from where the mountain trails end and only love can go... ~~~ Three Rivers Hare Krishna

03-10-2006, 06:25 AM	#7 (permalink)
ngdawg peekaboo Location: on the back, bitch	That I know since I worked at a bank loan center and did credit reports, but the part that doesn't jibe is One of the reasons people would want to close out credit cards is if they want to purchase a home," Brannan says. "To have a lot of available credit is not to your advantage." That should really be, I would think, 'to have a lot of outstanding credit debt'. The best credit reports are those that show past debt paid in full on time (banks don't even like seeing debt paid off early as a pattern). As everyone here probably is aware, we were in such serious financial dires as to consider bankruptcy, instead we went to increase our equity loan to double what it was and got the loan, no problems, reason being that even though we had mounting credit debt, I kept the payments current and many of the credit lines open and unused. When choosing what to do when debt mounts, it's actually a better deal to allow such things as utilities to go past due as they do not report to credit bureaus unless suit is filed or the outstanding balance is turned over to a collection agency-that's when you know you're in deep doo-doo. Pay housing and credit balances first to keep the ratings decent. __________________ Don't blame me. I didn't vote for either of'em.

03-26-2006, 08:01 AM	#11 (permalink)
abscondo Tilted Location: MI	Don't close card accounts immediately before applying for credit (mortgage, car loan, etc.), because there will be a short-term negative impact -- your debt ratio actually increases. Also, make sure they note that the account was closed at your request. Otherwise someone could leap to the wrong conclusion about you. __________________ Ceci n'est pas une pipe.

03-09-2006, 12:55 PM	#2 (permalink)
crossova Psycho Location: new york	Thats a good question. waits for a professional response

03-09-2006, 01:08 PM	#3 (permalink)
intecel Psycho	I want to know the same thing.. I have 9 cards that have 0 balances on them. I'm not sure if it will hurt my credit to close them since these are my longstanding cards. I have 3 cards with balances, but they're all new within a year. Info on thsi would be great.

03-27-2006, 10:26 AM	#12 (permalink)
LeviticusMky Crazy Location: Minnesota	Thanks, I've been wondering about his recently. Had a 500 dollar credit card from early college days sitting around with a zero balance for about a year now. Probably gonna get rid of it. __________________ Fact: Global levels of Oxygen are depleting. Fact: Global levels Carbon Dioxide are increasing. (icy hell)Mars<------EARTH------>Venus(burning hell)

03-28-2006, 07:57 AM	#13 (permalink)
catback Psycho Location: North America	I've read you should wait to close credit accounts until after you make a major purchase (home/car) if you had such a purchase in mind. Their reasoning is if you close an old credit card your credit history may appear to be shorter than it is, thus affecting your credit score. Also as ngdawg found out having your debt be more than 50% of your credit limit looks bad to creditors.