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Credit Scores

Q&A: Closing a long-held credit card didn’t have much impact

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Dear Liz: I just read your column about cardholders being fearful of canceling a card. Here’s my story.

I made an online purchase with a credit card I’ve had since 1981. The purchase turned out to be a scam. I spent hours trying to resolve this. When I finally got a human, she was extremely hard to understand and was very condescending. She told me I should upgrade to another version of their card at a higher cost. I finally told her to cancel my card. Then she went to Page 2 of her script and offered me a $50 credit toward the purchase being disputed. After 20 minutes and my insistence that I no longer wanted their card, she finally canceled it. My credit score dropped 4 points. At first, I was concerned, but honestly, after 44 years with them and thousands of dollars in annual fees, the way I was treated made my decision easier.

Answer: Thanks for sharing your experience! The impact of closing the account might have been greater if it had been your highest-limit card, if you didn’t have several other open cards or if your credit scores weren’t high. But even a larger ding would be temporary as long as you continued to use your other accounts responsibly.

Q&A: Don’t be overly fearful about closing credit cards

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Dear Liz: You recently advised a couple who have excellent credit, no outstanding loans and a low credit utilization rate that they could close their credit card with a company that keeps reducing their credit limit when they don’t spend enough on their card. The writer has to contact the credit card company every time to get it restored to its original credit card limit. You suggested they could close their account but you didn’t address their question about whether they’d be better off settling for a reduced credit limit. Wouldn’t a reduced credit limit harm one’s credit scores less than closing an account?

Answer: Probably, but the point was that closing the account was unlikely to do significant or lasting harm as long as they had other credit cards. The couple could make the effort to try to keep the account open, but the hassle might not be worth the limited benefit to their credit scores.

People with excellent credit are often overly fearful about closing credit cards. It’s true that you generally should avoid closing accounts if your scores aren’t great or if you’re in the market for a major loan, such as a mortgage. It’s also a good idea to keep a big gap between the amount of credit you use (your balance) and the amount you have (your credit limit). That could mean hanging on to your highest-limit cards or having the credit limit of a card you’re closing transferred to another card you’re keeping.

But you shouldn’t be afraid of closing accounts if you have a good reason to do so.

Q&A: Will canceling a card permanently hurt my credit scores?

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Dear Liz: My wife and I have excellent credit, pay our credit cards in full each month before the due date, and have no outstanding loans or debts. Our credit utilization is low, about 3-4%. Our total available credit is about $125,000 for six cards.

One credit company keeps reducing our credit line every time they think we aren’t using their card enough. They want us to “spend more,” but haven’t defined how much to spend per month. It’s becoming stressful having to contact this company every time to get our credit line restored to the full amount and our credit scores back up by about 10 points.

If we close this account, which is not our oldest card, do we risk our score dropping significantly and permanently? Would we be better off settling for a lower credit limit? If we do either, would it trigger alerts to other cards we use to do the same? The other cards have better benefits so we use those more.

Answer: There is nothing permanent about credit scores. They change constantly, and the minor damage you do by closing a card can be swiftly repaired as long as you have other cards that you use consistently and responsibly.

If there are months where you don’t use the card at all, you could consider adding a small recurring charge or two so the account shows some activity. You could also ask for a “product change” to a card with better benefits that you’re likely to use more often.

Or you could just figure that this company isn’t interested enough in your business to be worth the bother. When you call to cancel the account, make sure to tell them exactly why.

A dramatic drop in your credit scores could cause other issuers to review your accounts, but your scores are too good, and the impact of one closure is too slight for you to worry about that.

Q&A: Simplify your finances with fewer credit cards

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Dear Liz: I have too many credit cards that I opened to get frequent flier points. I understand that closing a credit card lowers your credit scores. How long does the ding last? How long should I wait before closing another card? Do you have any other advice on this subject? You probably have discussed this in previous columns but it might be worth repeating.

Answer: If you have a lot of cards, closing a few is unlikely to significantly hurt your credit scores as long as you do so strategically.

A big chunk of your credit scores is determined by how much of your available credit you’re using. You want a large gap between the amounts you charge and your credit limits. Try to keep open the cards with the highest credit limits. If you have multiple cards with the same issuer, ask if the credit limit from a card you’re closing can be transferred to one you’re keeping.

Even if your scores do dip because of a closure, the effect is likely to be short-lived if you continue using credit responsibly.

Ideally, you would review your portfolio of credit cards every year or so to determine which cards to keep and which to close. Travel rewards cards typically have annual fees, sometimes significant ones, so you’ll want to make sure every card you have is at least paying for itself in annual rewards and benefits.

Also consider the mental load involved. As you age, you may find it more difficult to monitor multiple accounts and keep track of all the details. You may want to simplify your finances by winnowing your cards down to just one or two. At that point, keeping your finances manageable will be more important than maintaining the highest possible credit scores.

Q&A: Should I borrow to boost my credit scores?

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Dear Liz: I’m one of the beneficiaries named in my late relative’s will, and plan to use the money to buy a new car. Should I pay cash up front and avoid the interest charges on a loan, or set up monthly payments to help enhance my credit score (currently just under 800)?

Answer: A car loan might boost your scores, especially if you don’t already have an installment loan such as a mortgage on your credit reports. But once your credit scores are in the high 700s, you’re typically getting the best rates and terms from lenders. You’d be paying interest for no reason other than bragging rights.

Q&A: Credit cards and co-signers

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Dear Liz: My son is in his mid-20s. He has a credit card that we co-signed and that has a credit limit he would likely not qualify for on his own. He would like to remove us as co-signers as he starts to take more personal control of his finances. Would it make more sense to apply for a new card using only his income information, and then slowly stop using the old card? Or is it better just to take the hit on his credit rating now and request our removal from the old card?

Answer: It’s not clear whether you’ll be able to bow out of this arrangement without closing the card. Most major credit card issuers don’t allow co-signers. More typically, parents would add their children as authorized users. While the parents can remove their children from the account, the opposite isn’t true.

If this is a co-signed card, the issuer may have an option for removing you. Your son will need to call and ask.

In general, though, it would be better for his credit to apply for a card on his own and leave this account open.