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I have a credit card that I haven’t used in a long time. I just got a letter from the company saying:
“We’re writing to you because we noticed that this credit card account hasn’t been used for at least 24 months. We believe this may indicate that the account no longer meets your financial needs. With this in mind, the account has been closed.”
Translation:
“We haven’t been making any money off of you, and because you haven’t used your card in 24 months, FINALLY we’re allowed by law to close your account without notice. Go away now.”
Today’s quiz: what will happen to my credit score?
A) It won’t change, because closing an account that hasn’t been used in 24 months doesn’t make any difference.
B) It will go up, because now I have less credit available, and therefore less ability to go into debt.
C) It will go down, because my balance on my other card is now a higher percentage of my total available credit.
D) It will go down, because I’ve lost the history of timely payments on that account.
I don’t know the answer. Do you?
Hi Hunter – I think “C” is the correct answer.
Even though they closed the account, your history should stay intact, UNLESS some new law give them the ability to change that, too.
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I think it will go up. I can’t remember where I read this but if I remember correctly, when a person has credit cards that they aren’t using, it’s better for the credit rating to get rid of them.
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I have been battered by my CC company to get a business card. I finally gave in thinking it would be wise to separate the two.
Guess what happened?
Yep that’s rightt, they turned me down.
Now that definitely does harm your credit rating so I called them. Now bear in mind I have lived here 3 years, have never missed a payment anywhere including car loand ans other sundries and already have one account with them.
I was told that I had to have 5 years business history. When I said I had a $10k limit on my personal card and only needed about $2k on my biz card and anyway, they asked me! I was told to *&^% off, or words to that effect.
Think I’ll be getting a card off them when I am eligible? It’s a tough call.
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C is definitely the right answer. FICOs are based on many things, but your debt ratio is one of the primary indicators for making the credit score assessment.
C. It will go down. A pox on credit card companies anyway!
Generally too many open accounts is not a good thing as I understand it so closing an account should raise your credit score – unless the fact that they closed it could be viewed less positively than if you had closed it.
That it will go down because you were a bad little boy and didn’t make the Credit card company any money on your card by being responsible and not using it. And they have the power to make it go up or down.
They will hand out cards so that little bad people will use them because these little bad little people have this rational that it’s somehow free money when all you are doing is making the company money at your expense and they could care less about you. But be late once on a payment and see what they do.
Over here in Singapore, we are encouraged to have as much credit as possible. I receive calls every now and then about my “pre-approved” limits. The callers at the other end will launch into a sales talk on why I need to have a credit line. What a joke!!! They did not even bother to ask me about my needs.
Sometimes I just have to stop them from going into a long one-sided presentation because I don’t have time to listen to their entire sales call. I also think that I am doing them a service by not letting them waste their time with me. Of course, I try to let them know that I am actually very busy as politely and firmly as possible.
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C. It’s all about the debt to available credit ratio.
When you close a card, or it’s closed by the company because they aren’t sucking money from you like a vampire sucking blood, your available credit drops, but your debt stays the same.
Suppose you have two credit cards, each with a small limit of $500. Your total credit is $1000.
You don’t use one, and haven’t in a long time, but you keep it just in case you might need it for something. Hey, having $500 available when your hot water heater blows is handy!
The other card, you have a balance of $250 on.
Your debt to credit ratio is 250/1000, or 1/4.
Now, the credit card company is tired of maintaining an inactive account, because they aren’t making money on it. They close that card that you haven’t used.
Your debt to credit ratio is now 250/500, or 1/2.
And that will hurt your credit score. They higher your debt to available credit ratio the better, and anything that changes that will hurt your score.
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The answer is, from my own personal experience in closing 4 credit cards (due to inactivity) is C. Mine went from a 780 to a 620 in 1 year simply by closing cards. Bad! Bad! Bad! Don’t carry too many cards. Always charge something on the cards every month. Always pay it off in full when it’s due.
Wow, I was amazed at some of the answers and that nobody seemed 100% posistuive. I Have 20 years experience dealing with Credit Reports and I can tell you that closing an account will definatly lower your Credit Score. You can say that it is because you now have less avcailable credit, but the Credit Score of someone with out any other debt will also go down. The truth is that the people incharge of your Credit Score are the same people that make money off it, and the lower your score the more they can charge you. There is currently a law suit in Florida, because with out giving any notice Companies started lowering your Credit Rating based on where you use your cards. For example your rate could go up if you use your card at places like a Bar or a Casino. The legal argument against this is that if using your card at these places can lower your score or increase your rate, they need to tell you so you can make the choice to use it or not.
Definitely C. It will go down for sure. How much is the bigger question. This will depend on the credit line under that card and your total credit line, along with your total debt, and a tarrot card reading, an astrology reading and whatever the chicken entrails say.
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I have 5 credit cards open through Bank of America – only one in use (one was from my first year in college and had only a limit of $50 on it! Must have been something from my parents). I met with a personal banker the other day, but she said to keep all of them open, because I’ve had some of that credit for 10 years. I would love to simplify and close all of them, but she said that would hurt my credit. So, based on that, I would think it would be Answer C? You know – this would be a perfect opportunity for some banker/credit company to come in and insert themselves into the conversation, thereby giving themselves free advertising/PR.
Oh no you could lose your awesome pick up line!
OK, the answer seems to be C. Hopefully it won’t go down too much. I always pay my credit card bills in full, so my debt is just whatever I’ve charged so far for the month. We’re talking a few hundred dollars out of tens of thousands of dollars in available credit, so the ratio is really low.