Is your credit score lowered when you cancel a credit card?

Question

My daughter is in college and opened a low interest Citibank VISA for college students not realizing that the interest rate went up very high after 6 months. We are making more than minimum payments however I was wondering if we closed the account and contine to make the payments would this damage or lower her credit rating or credit score without the account being paid off prior to closing it?

Answer 1

Far worse that a credit score ding would be if the Citibank VISA requires FULL payment at the time of closing the credit card account. If you close the account, and then they require full payment which you may be unable to make, then this route would be even less desirable.

Beyond that, closing a credit card account rarely improves a credit score. In fact, depending on the age of the account and the available credit on the card, it may have a negative impact on the credit score. That's because "length of credit history" and "debt-to-available-credit ratio" are two of the leading five factors used to calculate credit scores.

If you close an active credit card account (one with a balance), you may cause these two factors to work against the credit score because you will end the "history" of that account and you will cause the "debt-to-available-credit ratio" to grow (if this is her only card, you may cause the ratio to flip far upside down because she will owe more than the amount of available credit... because you closed the available credit by closing the account... so, if she owes $500 on a $1000 credit limit, her ratio is 50%, but once you close the account, she will owe $500 on a $0 credit limit and her ratio will go through the roof... the lower the ratio, the better -- best to keep debt well below 50% of available credit).

I would call Citibank VISA and ask for a lower APR after your 6-month introductory period expires. Don't expect anything on the first, second or third call. It takes persistence, but it is possible. Please see the following "Deflate Your Rate" report and see how others did this.

http://truthaboutcredit.org/truth.asp?id2=6153&id3=credittruth&

Answer 2

Yes this will lower her credit rating. Simply put, part of the credit score calculation is "how much of your available credit are you using." If she closes the account, then her available credit will be zero, but she will still owe a balance.

Also, if she pays the card off and keeps the account open, it looks very favorable from a credit building standpoint. In fact, she could graduate from college with close to a 700 credit score, which would put her in good position to get a low rate on her first car purchase after college.

If you are worried about her abusing the account, then simply keep the card in a safe place. Hope this helps!

Answer 3

When you cancel a credit card or close the account, it WILL lower your score.

A large portion of your credit score relates to the debt/credit ratio you have, plus credit history. By removing a credit card you lose a portion of your history, and potential creditors are unable to judge what type of a payment history you have.

My suggestion is call Citybank and demand that they lower the interest rate. Remind them that there are hundreds of other credit card companies out there after your business who are offering much less rates. If they won't lower your rate, then keep the card, but stop using it! Pay off the debt and cut up the card.

But don't cancel the account! Keep it open so you will protect your credit history.

Answer 4

No it won't damage her credit as long as the balance is paid. However I would just keep it open and pay off the balance this will improve her credit rating - take the card away from her if need be. But the best thing to do is keep the account open and pay it off. You can find credit cards were the interest rate does not go up and you may be able to perform a balance transfer from your old card at a lower rate here :

http://www.dgftaworld.net/credit/AmericanExpressCards.htm

Answer 5

There are many factors that have to be examined before automatically closing any account. One of the items that make up your credit score, is length of credit history. If this is her oldest trade-line, then it can very well affect her score negatively. The other thing that she has to consider is how much available credit she has open versus how much she utilizing. If her used credit goes over 50% of total available credit, that can hurt her score.

Here is an article directly from Experian regarding this issue:
http://www.experian.com/ask_max/max061505b.html

Here is another article regarding simple things you can do to improve your score:
http://www.brightscore.com/Education/improve/ImproveScore.aspx

Answer 6

No effect. ON you credit report it would just say closed by consumer. That's not a bad thing, and make no effect on the over all credit or the credit score. Former employee of the consumer credit industry.

Answer 7

It shouldn't, in fact if you pay off the entire balance, it should raise your credit score.
paying off the the entire card will always open the flood gates to other credit card offers, use caution and always ask questions before signing up for a new card.

Hope that helps.

Answer 8

If pay it off it will not be negeative credit but it may reflect slow payments. Check with the conmpany some are able to lock the cards status to give you time to catch up on the payments before you decide to cancel it.

Answer 9

generally yes. credit agencies look for long histories. also if you reduce the available credit for your daughter and increase her debt to credit ratio that would also decrease her score. so it depends, but generally yes it is not a good idea to close accounts until you have established a long history with it and it doesn't affect the debt to credit ratio.

Answer 10

not at all, if she ever applies for a laon for a house or something she is better off closing all credit card accts. it is counted as money against you, like if you have a $3000 credit limit they count it as that amount even if you have nothing charged on it, because it is available. So credit cards can work against you.