Author Topic: Credit Cards - How bad is it to get rid of them?  (Read 3871 times)

WengerTodd

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Credit Cards - How bad is it to get rid of them?
« on: December 17, 2019, 06:03:46 AM »
I have several credit cards... 6 in total. I'd like to get rid of at least 3 of them, but I'd like to know how this will affect me.


I only really ever use one of them primarily and *sometimes* two others. I charge *everything* I can to one of the credit cards because I like the benefits it gives me. Two of the other credit cards I have, I took out at one point because I liked the benefit that those credit cards were giving me at the time, but it's not something I'm interested in anymore. Also... one of them ended up changing and no longer provides the benefits they originally offered. Two of the other ones, I don't even really remember when I signed up for them, and one of them is a retail card that I got 0% interest on during home renovations.

There are no balances on any of them of course, and I try to charge at least one thing on each one every 3 months (like gas or something) to keep them active. But I'd really like to just be rid of some of these.

Like, for example, two of the credit cards have pathetically low credit limits on them. I'm pretty sure I've had these cards for over a decade. The two I'm talking about, one of them is like $8,500, and the other one I think the limit is not even that. I don't even know why I have them.

My FICO 8 / 9 credit score is 850, and I'm really proud of that and don't want to negatively affect this. Are there ways that I can get rid of a credit card (or two) and still keep really good credit? I assume it'll take a temporary hit when I close them... but how long does this last?

Thanks...

Kendall

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Re: Credit Cards - How bad is it to get rid of them?
« Reply #1 on: December 17, 2019, 09:18:41 AM »
Regarding the FICO score, I had a similar situation. My score was 850 and I felt an intense drive to keep it there. Pride and stuff :-)
I am not working and I live off my investments and the income of my partner. Then last year we decided to buy a vacation property together and my credit score dipped to 750. I admit it, that hurt a little bit. After some thumb-sucking and gnashing of teeth I decided that I should not let the FICO score tail wag the dog. What was I gaining from obsessing over a number? I read that a score over 700 is very good and lenders do not regard 800+ as an improvement according to our mortgage broker at BofA. Also, ultra-wealthy persons may not even have a valid credit score. FICO scores measure the ability to manage cash flow, passing one's paycheck from your employer to your creditors, i.e., "living the American Dream". If one's wealth is mainly held in investments and not from income, the score becomes less indicative of his or her creditworthiness. BTW, my score is back to 819 with no effort on my part.

I had several credit cards from the wild and crazy 2000's when I was rolling my HELOC between 0% balance transfers on cc's. I found that after a few years of inactivity, the cards were no longer issued and accounts closed automatically. Maybe that is not happening anymore?
« Last Edit: December 17, 2019, 09:29:05 AM by Kendall »

WengerTodd

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Re: Credit Cards - How bad is it to get rid of them?
« Reply #2 on: December 17, 2019, 08:23:44 PM »
Regarding the FICO score, I had a similar situation. My score was 850 and I felt an intense drive to keep it there. Pride and stuff :-)
I am not working and I live off my investments and the income of my partner. Then last year we decided to buy a vacation property together and my credit score dipped to 750. I admit it, that hurt a little bit. After some thumb-sucking and gnashing of teeth I decided that I should not let the FICO score tail wag the dog. I had several credit cards from the wild and crazy 2000's when I was rolling my HELOC between 0% balance transfers on cc's. I found that after a few years of inactivity, the cards were no longer issued and accounts closed automatically. Maybe that is not happening anymore?

Thanks Kendall, I know you're right... but I'm still in the first phase you talked about... the intense drive to keep it there. I looked up all my credit cards on a credit report last night (that one of the cards offers for free), and I discovered the one I really want to get rid of, is actually the one that has the longest credit history... ugh!!!

As for automatic closure... I use the cards once every 3 months (for gas, or something small), as I was told this is what you're supposed to do to keep it active. I think there are two that I can easily close as one is only the second oldest, and the other is fairly new which I don't use anymore either. So I think that's a done deal. I might call the older one and see if I can transition the card to something a bit more useful to me, with a credit limit that makes up for the other two that I plan to get rid of.

Leigh

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Re: Credit Cards - How bad is it to get rid of them?
« Reply #3 on: December 19, 2019, 05:45:10 AM »
Good morning!

Just keep these things in mind:

35% of your FICO credit score is from paying your debts on time.
30% is your debt to credit ratio. How much of your available credit are you actually utilizing.
15% is the age of your lines of credit.
10% is the variety of credit lines
10% is how many inquiries

If you reduce your lines of credit, you will essentially raise your debt to credit ratio. I am assuming you understand what this means, but for the peanut gallery who may be reading this, I'll explain.

If you have six cards with a combined available credit of $12,000, and you charge $3000 on those cards every month, you are utilizing 25% of your available credit. This is acceptable. (anything over around 30% is frowned upon) by FICO and vantagescore says the lower the better and the percentage utilized is 'highly influencial'.

If, however, you reduce your cards to two, with a combined credit limit of $4000 and you charge $3000 every month, you are now utilizing 75% of your available credit and your credit score is going to go down.

yes, keeping an older line of credit is important but do what you have to do. I recommend my clients evaluate their cards every few years and see what is working best for them.

Personally, I keep a high cash back card, a quarterly bonus cash back card, a premium travel card for travel benefits and one premium card that as of yet, I haven't seen another card to match the goodies it offers.

I pay off every card each month and charge every single thing I can. It's all about budgeting.

Good for you though, that you use cards responsibly, and understand their impact to your score.


WengerTodd

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Re: Credit Cards - How bad is it to get rid of them?
« Reply #4 on: December 19, 2019, 07:35:10 PM »
Good morning!

Just keep these things in mind:

35% of your FICO credit score is from paying your debts on time.
30% is your debt to credit ratio. How much of your available credit are you actually utilizing.
15% is the age of your lines of credit.
10% is the variety of credit lines
10% is how many inquiries

If you reduce your lines of credit, you will essentially raise your debt to credit ratio. I am assuming you understand what this means, but for the peanut gallery who may be reading this, I'll explain.

If you have six cards with a combined available credit of $12,000, and you charge $3000 on those cards every month, you are utilizing 25% of your available credit. This is acceptable. (anything over around 30% is frowned upon) by FICO and vantagescore says the lower the better and the percentage utilized is 'highly influencial'.

If, however, you reduce your cards to two, with a combined credit limit of $4000 and you charge $3000 every month, you are now utilizing 75% of your available credit and your credit score is going to go down.

yes, keeping an older line of credit is important but do what you have to do. I recommend my clients evaluate their cards every few years and see what is working best for them.

Personally, I keep a high cash back card, a quarterly bonus cash back card, a premium travel card for travel benefits and one premium card that as of yet, I haven't seen another card to match the goodies it offers.

I pay off every card each month and charge every single thing I can. It's all about budgeting.

Good for you though, that you use cards responsibly, and understand their impact to your score.


I really appreciate you posting those percentages, that is really important for me because it'll help me understand better how I'm affected by various decisions. Unfortunately for me, my investing and fiscal education was slow and picked up in tidbits over the past ~20 years. The positive is that I largely took responsibility as I inferred it from my dad growing up. But there was no "ah hah" moment for me, just picked things up as the interest in the topic hit me. Not to beat this horse, but since I'm here I might as well lay out (somewhat fictitiously) my plan moving forward.

Here are the current cards I have:

Bank / Origination Date / Credit Limit / Additional Info

SuperFancy Bank - 5/30/2011 - $32,500 - Primary Card [KEEP]
Oregon Trail Bank - 4/3/2009 - $16,500 - Second Most used (but rare) [KEEP]
Bank of Afghanistan - 5/12/2005 - $13,000 - Third Most used (rarely) [KEEP]
Jim-Bob's Bank - 6/12/2006 - $8,450 - Never Use [ELIMINATE]
British Leyland Card - 6/28/2001 - $6,550 - I REALLY want to get rid of this card, but it has the oldest inception date. ***
Hechingers Hardware - 7/19/2017 - $23,700 - Really don't want this card, but thinking I should keep since it adds to my credit [KEEP]


1 - So what's clear to me, I can definitely get rid of Jim-Bob's Bank card, with the second lowest credit limit, and the fact that I never use it, it really serves no point in me even keeping it. So I'm going to axe that one.

2 - Hechingers Hardware, I'd really like to get rid of this one, I don't think I'll ever use it again, but I may decide to just keep it because it adds so much to my total credit amount. So I'll probably keep it. It may come in handy with a future home I own, plus I own stock in Hechingers (lol).

3 - British Leyland Card, I feel obligated to keep this one because it's my oldest credit history, almost 19 years now. I never use this car, and there are absolutely no benefits to it that I have any interest in. So what I'm going to do is call the company, and just be honest with them that I don't plan on using it anymore. If they can "convert" the card to another kind, which will allow me to keep the age of the card, and make up for the loss of credit amount from card #1 I'm getting rid of, then that will work. If it really comes down to it, I may just do what Kendall says and just axe it too... I don't want the hassle, and their website is totally ridiculous. Matter of fact, every time I log in to check, it pretty much asks me to create a new password because the site sucks so bad. I have a $0.50 credit, hahah... and I haven't used it in 5 months.



Last couple of questions (again, I really appreciate everyone giving me advice)...

- Is having $100k of available credit important in calculating debt to credit ratio when you have ~$450k in mortgage debt? Or are the two totally unrelated? I don't have any credit card debt, and sometimes I make multiple payments a month just to keep the balance at $0.

- Does anyone know of a credit card that allows you to pay down mortgage interest that is non-specific to one mortgage company?

- What is the difference between FICO 8 and FICO 9? My FICO 8 is 850, but FICO 9 seems to fluctuate wildly with no obvious reason. Like, I dropped 21 points one period without any obvious indications as to why... I still had a credit utilization of 0 or 1%... and none of the other factors?



Thanks again!

Leigh

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Re: Credit Cards - How bad is it to get rid of them?
« Reply #5 on: December 20, 2019, 05:20:03 AM »


I really appreciate you posting those percentages, that is really important for me because it'll help me understand better how I'm affected by various decisions. Unfortunately for me, my investing and fiscal education was slow and picked up in tidbits over the past ~20 years. The positive is that I largely took responsibility as I inferred it from my dad growing up. But there was no "ah hah" moment for me, just picked things up as the interest in the topic hit me. Not to beat this horse, but since I'm here I might as well lay out (somewhat fictitiously) my plan moving forward.

Here are the current cards I have:

Bank / Origination Date / Credit Limit / Additional Info

SuperFancy Bank - 5/30/2011 - $32,500 - Primary Card [KEEP]
Oregon Trail Bank - 4/3/2009 - $16,500 - Second Most used (but rare) [KEEP]
Bank of Afghanistan - 5/12/2005 - $13,000 - Third Most used (rarely) [KEEP]
Jim-Bob's Bank - 6/12/2006 - $8,450 - Never Use [ELIMINATE]
British Leyland Card - 6/28/2001 - $6,550 - I REALLY want to get rid of this card, but it has the oldest inception date. ***
Hechingers Hardware - 7/19/2017 - $23,700 - Really don't want this card, but thinking I should keep since it adds to my credit [KEEP]


1 - So what's clear to me, I can definitely get rid of Jim-Bob's Bank card, with the second lowest credit limit, and the fact that I never use it, it really serves no point in me even keeping it. So I'm going to axe that one.

2 - Hechingers Hardware, I'd really like to get rid of this one, I don't think I'll ever use it again, but I may decide to just keep it because it adds so much to my total credit amount. So I'll probably keep it. It may come in handy with a future home I own, plus I own stock in Hechingers (lol).

3 - British Leyland Card, I feel obligated to keep this one because it's my oldest credit history, almost 19 years now. I never use this car, and there are absolutely no benefits to it that I have any interest in. So what I'm going to do is call the company, and just be honest with them that I don't plan on using it anymore. If they can "convert" the card to another kind, which will allow me to keep the age of the card, and make up for the loss of credit amount from card #1 I'm getting rid of, then that will work. If it really comes down to it, I may just do what Kendall says and just axe it too... I don't want the hassle, and their website is totally ridiculous. Matter of fact, every time I log in to check, it pretty much asks me to create a new password because the site sucks so bad. I have a $0.50 credit, hahah... and I haven't used it in 5 months.



Last couple of questions (again, I really appreciate everyone giving me advice)...

- Is having $100k of available credit important in calculating debt to credit ratio when you have ~$450k in mortgage debt? Or are the two totally unrelated? I don't have any credit card debt, and sometimes I make multiple payments a month just to keep the balance at $0.

- Does anyone know of a credit card that allows you to pay down mortgage interest that is non-specific to one mortgage company?

- What is the difference between FICO 8 and FICO 9? My FICO 8 is 850, but FICO 9 seems to fluctuate wildly with no obvious reason. Like, I dropped 21 points one period without any obvious indications as to why... I still had a credit utilization of 0 or 1%... and none of the other factors?



Thanks again!

Financial Literacy is a life-long learning process because financial literacy keeps changing. Bitcoins debit cards, charging everything....these things were the norm or even known when I was young. We paid cash for everything and credit was hollering out to the pharmacist, "Put it on Mama & Daddy's account" when you picked up a prescription.  ;D

Just keep learning and most importantly, learning and understanding your own credit reports and spending habits.

SO...onto your quesions. Honestly, I would suggest playing around on credit karma to see how your score might change as you close cards. I think if you have your accounts frozen (AS YOU SHOULD) you may not be able to do this, but it might be worth a thaw to see how it would play out.

(can I just take a moment to rant about how INEPT Experian's website AND contact line is when trying to modify a thaw???  >:( )

Okay.

So the thing is, you need to do what you need to do. Close the cards you don't want and then pay your bills on time afterwards. Your score will be affected but for only a few months. If you aren't applying for a line of credit (or new auto insurance) it should not matter. After a few months, it will right itself.

A few things to check:

1. Make sure you don't have a balance on the card you want to close. Double check this. Pay it off.

2. Call the customer contact number and tell them you are closing the card. Request for a letter you can save in a file that it is closed and it was closed by your request. This should be noted on your credit bureau reports.

3. Double check if it's a rewards card that you aren't leaving any rewards behind.

4. Make sure you aren't inadvertently using this card to pay any automatic cable bills or anything else.

5.Double check you don't have any kids or a parent as an authorized user prior to destroying the card.

Keep notes of this cancellation on file and double check your credit reports on transunion, experian, equifax to ensure it was closed as you requested.

Your debt to credit ratio and debt to income ratio are two different financial animals but they do matter when you apply for a line of credit. The lender does need to know if you are a credit risk and if you can handle the payment. But debt to income ratio is not affecting your credit score. Your ontime payments of your mortgage ARE however.

I don't know anything about your credit card home mortgage interest payment question.

If you go to MyFico you can read all about fico scores. Lordy, it's like a car lot!  So many versions! Apparently Fico 9 is their latest and greatest, and third-party collections that have been paid off won't negatively affect the score, medical debt is treated differently, and rental history, when reported, factors into the score.
« Last Edit: December 22, 2019, 06:20:51 AM by Leigh »

WengerTodd

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Re: Credit Cards - How bad is it to get rid of them?
« Reply #6 on: December 21, 2019, 10:34:12 PM »
Financial Literacy is a life-long learning process because financial literacy keeps changing. Bitcoins debit cards, charging everything....these things were the norm or even known when I was young. We paid cash for everything and credit was hollering out to the pharmacist, "Put it on Mama & Daddy's account" when you picked up a prescription.  ;D

Just keep learning and most importantly, learning and understanding your own credit reports and spending habits.

SO...onto your quesions. Honestly, I would suggest playing around on credit karma to see how your score might change as you close cards. I think if you have your accounts frozen (AS YOU SHOULD) you may not be able to do this, but it might be worth a thaw to see how it would play out.

(can I just take a moment to rant about how INEPT Experian's website AND contact line is when trying to modify a thaw???  >:( )

Okay.

So the thing is, you need to do what you need to do. Close the cards you don't want and then pay your bills on time afterwards. Your score will be affected but for only a few months. If you aren't applying for a line of credit (or new auto insurance) it should not matter. After a few months, it will right itself.

Keep notes of this cancellation on file and double check your credit reports on transunion, experian, equifax to ensure it was closed as you requested.

Your debt to credit ration and debt to income ratio are two different financial animals but they do matter when you apply for a line of credit. The lender does need to know if you are a credit risk and if you can handle the payment. But debt to income ratio is not affecting your credit score. Your ontime payments of your mortgage ARE however.

I don't know anything about your credit card home mortgage interest payment question.

If you go to MyFico you can read all about fico scores. Lordy, it's like a car lot!  So many versions! Apparently Fico 9 is their latest and greatest, and third-party collections that have been paid off won't negatively affect the score, medical debt is treated differently, and rental history, when reported, factors into the score.


You're right Leigh, thank you. I'm going to take your advice. I've called the #2 and #3 credit card companies I listed above and asked them to raise their limit. As soon as I get confirmation one way or another, I'll close #4. Depending on how much they raise my limit, I'll close #5, or convert it. But more than likely, I'll just close it. No balances on any of the cards, and no points that I care about. I think those bottom two cards were (for me) at one time "credit building" cards, though it was so long ago that I can't even remember. One of them converted to a "Platinum" card, but is still basically garbage, so just don't need it.

Interesting about the FICO9 score, I read up on it and apparently it was created to take into consideration more immediate financial changes for the younger generation. I don't know if I agree with everything they've done... but I guess it makes sense.

Thanks again!