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Beware Of Canceling Credit Cards: Personal Debt, Family, Money, Investment

Published on September 15, 2004 By joeKnowledge In Home & Family

You got it. Canceling credit cards just when you get them without ever using them or using them once is just as bad as using them and not paying it back Well almost as bad).

From Fool.com

Closing accounts will not undo anything. According to Fair Isaac & Co., once you acquire more than seven revolving debt accounts, your FICO score begins to suffer a little. However, all is not automatically forgiven by simply closing accounts to get below seven. Once you've opened the accounts, the damage is done.

Well should you keep all those useless credit or charge card accounts? According to the article, be careful of what you cut up:

Closing open accounts may actually hurt your FICO score. Lenders take a hard look at the ratio between the balances on your revolving accounts and your total available credit. If you do have debt, try to keep it to less than 30% of your available credit. (The ideal number here is, of course, 0%. Here are some tips to get you debt-free faster.) Go ahead and keep those lines of credit open (but don't be tempted by untouched lines). When you close open accounts, those credit lines are no longer factored into your ratio. Thus the percentage of debt/available credit will increase. Ouch.

You get it? Say you have 3000 dollars in unused credit. You decided to get rid of one card because you don't use it. This card happens to be a 1000 card (totally free of any purchases).

At this moment before you cut anything, you have 12,000 in credit debt but 3000 is open. You close the account of the one you don't use (1000 of open credit) so now you have 12,000 in debt and only 2000 dollars of open credit. thus you credit score decreases.

Ouch is right.

So it is better to keep that account. I have an account that defaulted because I was not working and could not pay the bill so I am now on a plan. At the end of you year I will ask if I can keep the account showing proof that I can pay now that I am more financially stable. If I can keep the account I will have a card that is almost 8 years old. Now that is credit history.

If you have a credit card that you do not use, pay it off and keep it. the fact that its always zero (0) and you have so much of a credit line helps. The longer you have it, the better it is for you. Remember 15% of your credit score is about how long you had credit

This is also important:

Your lender may have a different perspective. Lenders are apt to penalize you for having too much available credit, fearing you'll one day snap and go on a spending binge that is well beyond your means. If this is an issue with your lender, you might want to talk about closing some accounts, as long as the lender also knows that your score could drop.

So be careful with your credit. Not that anybody has to tell you that.

For more click this link:
Beware Of Canceling Credit Cards

SOURCE: FOOL.com

Beware of Canceling Credit Cards

By Dayana Yochim (TMF School)
August 30, 2004

Nothing jogs the money memories quite like a credit report.

Ah, yes, I remember that Limited Express outfit (in the days before The Limited and Express were two separate stores). I believe I received 15% off my purchase for signing up for their charge card.

Oh, look! It's Providian. My very first Visa. (Sigh.)

Macy's? I don't remember Macy's in my charging repertoire.

Funny how lines of credit outlive those fond shopping memories. It's probably safe to say that those credit cards stashed snugly in your wallet aren't the only ones on your official record. So should you close those 18 open lines of unused credit listed on your report? Will removing old information about already closed accounts make you look more attractive to bankers?

Closing accounts will not undo anything. According to Fair Isaac & Co., once you acquire more than seven revolving debt accounts, your FICO score begins to suffer a little. However, all is not automatically forgiven by simply closing accounts to get below seven. Once you've opened the accounts, the damage is done.

Closing open accounts may actually hurt your FICO score. Lenders take a hard look at the ratio between the balances on your revolving accounts and your total available credit. If you do have debt, try to keep it to less than 30% of your available credit. (The ideal number here is, of course, 0%. Here are some tips to get you debt-free faster.) Go ahead and keep those lines of credit open (but don't be tempted by untouched lines). When you close open accounts, those credit lines are no longer factored into your ratio. Thus the percentage...

For more, click on the link provided...

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