What To Do With Credit Cards With No Balances?
Posted on August 17, 2006 by Him and tagged credit
This past weekend we hit a milestone: we paid off the balance that was transferred to the 0% balance transfer card a few months back. Now I only have one credit card with a balance on it, and that'll get paid off as soon as we pay off Her cards with higher interest rates (but still all under 5%, mind you).
On the other hand, I have seven credit cards that have no balance on them that aren't doing anything. They range in age from being opened seven years ago to being opened in the past year. Two of them are store cards. None of them have any cool rewards programs. My total credit line for all of my cards is $11,580. Knowing this information, what would you do with my cards?
Should I close the newer accounts at the risk of lowering my overall limit?
What happens to the cards after long periods of inactivity, like grow mold or whisper suggestive shopping phrases in my ear? Should I be using them periodically, then just pay off the balance?
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Agreed, keep them open. Part of your credit score is based on length of credit history, actually a pretty good portion of it. I wouldn't close any of them. Sign up for a free service like Yodlee and register the cards with them and you can set an alert to email you on any new transactions. Then just cut them up and forget about them. If somehow someone gets a hold of the accounts and tries to use them you'll be notified immediately.
I would recommend you keep two of the OLDEST accounts open, close all others except the one you use. Your FICO can also be negatively impacted by the amount of revolving accounts you have open. Ideally, I would recommend that you INCREASE the credit limits of the two OLDEST cards you keep open to offset the loss of credit when closing the other accounts.
When you do close them, send a letter that explicitly states you would like the statement "Closed at the request of consumer" or something similar as the reason for closing the account so that it may be reported so on the credit bureau.
Yes, yes, keep oldest cards open.
About credit limits: if you have more than one card with the same issuer (mergers etc mean you probably do have 2 cards from Citi, or Chase, or MBNA, or whatever among the 7) you can sometimes close the one with the shorter history and ask them to transfer your credit limit on that card over to the one you're keeping open.
Congrats! I remember when your negative net worth was in the high nineties. You're making great progress.
I have always heard that closing accounts will lower your overall credit score. Maybe it doesn't matter if you can maintain the same overall amount of available credit. I would keep them all open and throw the cards in the freezer and never use them.
The only time I plan to close cc accounts is if I can reallocation the credit limit to another card that I have like Claire said. Otherwise I leave it open and charge some small bill to it about once every 6 months or so to keep them from closing a dormant account.
However, no matter what, always keep your oldest cards. The two reasons that closing will sometimes hurt your credit score are when it lowers the average age of your credit history or when it increases your utilization.
Keep all of them! This is your credit history, there is no reason to close them. Also, you may need more options in the future, and having more cards gives you more options. We get checks and such all the time for good rates and other deals, and thank goodness for all those things because it has come in real handy for getting our debt paid off. Just keep them where you can't get to them... put them in a ziploc full of water and stick them in the back of your frezzer. ;)
Keep them all. They make good window scrapers. AS far as your $11,800 credit line: THIS ISN'T MONEY!! I repeat: THIS ISN'T MONEY. It is especially not YOUR money. It is the future potential of promising your interest money to a bank for the service of providing you with window scrapers. Yeah, yeah, credit is conveeeeenient. It is also a tool to get you to buy things that you don't really need. These things suck up resources that SOMEONE will need in the future just so you can buy some blow-up Bret Favre which will end up in a landfill. THAT's what credit cards are for; to destroy the planet at your convenience.
The Travelin' Man | Aug 18, 2006
The only reason to keep any of these credit cards open, if you are not using them, is to manipulate your credit score. If your goal is to eliminate debt, your credit score is irrelevant, because you are not going to borrow any more money.
While that is simple, the reality of life is often not so. I believe I recall reading that you do not yet own a house. If you would like to someday take out a mortgage, keeping good credit is not a bad idea. If that is the case, keeping your oldest card and the ones on which you are paying makes sense. However, keeping multiple dormant cards, even ones you have had for awhile, will not help your credit score as much as having one or two good cards with solid payment histories.
Lastly, the idea of a "good" card is something else to consider. I have a friend who was turned down for a rewards card, with good credit, because his credit history included all "secondary" lenders - like the ones who pitch college students with no income and no ability to pay things back (ahemmmm....Capital One). If your oldest card(s) are with good lenders, that will be more benficial than multiple cards from secondary (and store cards are generally considered secondary, too) lenders.
Still, don't lose sight of your goals - which I believe to be the elimination of debt. If that is the case, then your credit score is meaningless - as are all dormant cards.
Charlie | Aug 18, 2006
Keep one card and one card only, use it once in a while to keep it active but get rid of the rest. As time goes by your limit will increase but who really cares what your limit is...your credit card should be used but in an emergency or if you use it to pay your bills in order to recieve rewards points. BUT, you must pay it off at the end of the month. Keep the cash in the bank/investments to gain in interest, build a savings account to have in the event of an emergency but leave the credit cards allone. You can survive without it and there are better ways to show you have good credit...pay off your car on time, never have a late payment on anything, and have money in savings and investment...credit card can be trouble and most people who have them fail to benifit from them...watch how you use them but when you do treat it as a check or cash...pay the amount off when you get home that day.
jodies recycleables | Aug 18, 2006
if you were to call any mortgage company they would tell you not to close those accounts especially if you want to own your own home or refinance, it shows the potential home lender your history and the longer the accounts been open the better. If any of the cards are charging an annual fee thats a different story get rid of thsoe and perhaps apply to someone like discover since they are picky on who they issue credit to. Dont pay mortage points do to lack of no credit, closing the accounts will only help your credit score
I am a mortgage broker. I spend my days during the week looking at credit reports. The current structure of credit ratings look at HOW YOU MANAGE THE CREDIT YOU HAVE. The highest credit score I have ever pulled on a borrower was about 835 (for mortgage reporting, the credit scale is 350-850. His credit report was 15 pages long with 8 pages of open credit.
What you want to do is keep what you have open. Don't apply for credit unless you need it. Whether your accounts are with capital one, orchard bank, or an american express BLACK card, it does not matter. Major credit cards, VISA, AMEX, Mastercard, are all looked at the same in credit scoring. Don't open store accounts (10% off your first purchase of a dishtowel at Target! Yay!) What the scoring system for credit wants to see is your balances on all cards, individually and as a whole at less than 30% of your limit. they want to see all accounts open for multiple years with no late payments. If you have the accounts already, don't close them unless you think you are going to lose track of them. Check your credit EVERY year - legally you can get a credit report from each of the 3 credit bureaus for free. Go to www.transunion.com, www.equifax.com, and www.experian.com. Look around the sites to find the section on a free credit report- you don't have to sign up for all the credit watch, credit notice, pay for a yearly fee BS. If you get one of the 3 every 4 months, you are actually getting a credit check 3 times a year for free- and when you inquire into your own credit report this way, there is no damage to your credit score.
Keeping your credit positive is easy if you monitor these, don't spend unless you need to, and make sure it is there for you when you need it (like to buy a home)
quick note- I did see one thing above that is worth repeating- some companies will cancel you for inactivity, so charge something (that ddbl quarter pounder with cheese from McD's is fine) every few months to keep them active. If you don't need to use a store card, let them close (don't spend money unnecessarily, as it sounds like you have good credit already, losing the pep boys card shouldn't hurt you - but ensure you keep a few old accounts active, as these, with a low or no balance are a very solid basis for your credit report.
If you want, go to www.teshoney.com and request the homebuyers guide- it will give you good advice about your future planning for buying a home, as well as some info on credit reporting, etc. I mail it out free.
Close them all!
We found ourselves in a similiar situation about 6 years ago. Right now we have one credit card. I cannot see any good reason to have more.
Managing your finances is a good idea. Managing your life is a good idea. Managing your credit score is a bad idea. Take care of the first two and the last one will take care of itself.
Your credit score is only one factor in getting a mortgage. As long as you don't have bad credit a few points higher isn't going to matter. Other things that will matter:
1. Buy an affordable house.(Living within your means)
2. A decent down payment.(If you can save up enough then you won't need PMI)
3. A good work history.
4. Little or no other debt. Your total debt to income ratio is important. Having a big car payment will mess up your ability to buy a home.
Mortgage underwriters look at the whole picture. Your credit score is just one piece of the picture.
No one has mentioned Dave Ramsey here. He says close them all becuase they are "snakes" and if you play with snakes, "you'll get bit".
A credit score is an "I LOVE DEBT" score. If you aren't going to borrow money anymore, you shouldn't care what the score is.
Chad T | Aug 24, 2006
Close them all, a good Mortgage company performs their own underwriting and doesn't rely on the "I love debt score."
I don't know as much as others - but I would close most of them...this way you get 0% on new accoutns in future too!
Greling Jackson | Aug 30, 2006
"Close them all"? "Credit score doesn't matter"?
Very dangerous advice, even as simple as it sounds.
Try getting a job handling money with a poor credit score.
Try getting an apartment with a poor credit score.
Try financing a car with a poor credit score.
Try buying a house with a poor credit score.
And, without a credit card, you'll be forced to pay for everything in cash (no one will really accept personal checks these days). This is a huge burden if you plan to travel overseas or if your car breaks down on the freeway.
Closing a credit card never helps your credit score. The damage has already been done. However, if you're the type that has 10 or more credit cards, then my advice to you is to wait to pay off all of the balances first and then close most of them slowly, keeping the oldest one open and requesting that it's limit be increased.
But, apart from your college GPA, your credit score is the one score that will stick with you for the rest of your life. Never underestimate it. Nobody likes credit, but someday you'll need it.
ChadT | Sep 17, 2006
"Try getting a job handling money with a poor credit score."
If this is the only thing your prospective Employer is looking at; you should ask yourself if you really want to work for such a company.
"Try getting an apartment with a poor credit score."
Can't say that I have ever lived in one. But I'm sure you could sit down with the landlord and discuss it face to face. If you have learned from your mistakes, someone will be willing to cut you a break.
"Try financing a car with a poor credit score."
What is wrong with paying for one? You know, with cash.
"Try buying a house with a poor credit score."
Again, a good Mortgage company will do a manual underwriting. And again, the alternative would be paying cash.
"This is a huge burden if you plan to travel overseas or if your car breaks down on the freeway."
This is where AAA comes in handy.
"Nobody likes credit, but someday you'll need it."
Only if you want have debt for the rest of your life. ;)
RH | Mar 13, 2008
Getting an apartment with a bad credit score is incredibly difficult. My current roommate and I had to wheedle our landlord to let us rent from him because although her references check out and she makes a decent living, her credit score was too low for his comfort. We almost didn't get the place. Credit scores are incredibly important. If I were you, I'd listen to the mortgage broker. Your credit score affects car insurance rates and all sorts of things that are completely unrelated to debt. While it is not a complete financial picture of someone, it is the track record that many companies use to decide if you are worth their time (or money). I'd keep three or four cards open (the ones you've had the longest) and stagger closing the other accounts (close one every 6-8 months or so). Good luck.
a girl | Aug 17, 2006
Actually, you should keep the cards that have been open the longest. I have read articles and talked to bankers (I used to be in banking and am now in a related industry) about this type of thing, and everyone seems to agree upon one thing. The longer you keep your credit cards, the better it is for your credit score--as long as you pay them on time. I have one card that was opened 5 years ago, and I have not used it since about 4 1/2 years aog. Because I have not used it, it shows that I have not had a late payment ever. I may recommend using it for a small purchase every few months as I am not sure of the individual company's policy on dormant accounts. Maybe buy gas or lunch on them every other month and pay the card off the same month.
However, another factor in a lender determining your risk factor is your debt to available credit ratio. I read an article on MSN Money that said that you should keep your balance no higher than 35% of your available limit--total between all of your cards and revolving credit lines. So say you have $10,000 in available credit--you should keep your combines balances below $3,500.
Also, it will look bad on your credit report if you close them all at once. It may or may not change your credit score, but it will not look good to a lender.
My recommendation to you would be to close one card every 6 months or so until you have 4 open. (Four was the number recommended to me by my mortgage guy.) Keep the oldest one for sure and the one with a fairly high credit limit, in addition to the one you carry a balance on. You want to show potential lenders that you are responsible with the credit that you have already been given. You have a long history of paying on time (the old card) and you do not abuse the amount you are given (the one with the high limit).
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