Why is it bad for credit to cancel a card?

Question

I have 3 credit cards that I just never use. I have kept them for emergency purposes. If I need a credit card for something, I just use my debit card. (Is this really a bad thing?)
Anyhow, one of the creditors just informed me that they will charge a fee even if you have a zero balance, and also an extra fee for foreign purchases. Of course, I want to cancel. Is this bad? Also, I already cancelled 2 dept store cards, Lerner & Spiegel, last year.

Answer 1

I don't know where the poster had gotten their information - the one who said having credit cards that have balances at zero means the accounts are maxed out and fully utilized - totally wrong.

Available credit does not equal debt. If your cards are at zero or below 30%, your utilization would look great.
And if that is the case, a credit analyst would not see a person that is "in" debt. But rather as a person who is credit worthy (as long as there are no derogatories, such as late pays, charge offs, etc.)

Anyway-

If one of your creditors told you that they will start charging a fee, by all means call them and cancel.

As for the other 2 cards, if those are the only cards you have you might leave them open. About every 6 months charge something small on them, socks, gum, whatever. Then pay in full when you receive the statement.

That way you would be keeping the cards open/current and paying in full when you receive the statement will mean paying no interest.

You would be making the cards "work for you" in giving you a good history, showing that you can handle credit, lowering your auto insurance, giving you a good chance at lower rates on future credit (car/home), etc., etc., etc.

edited to add a thumbs up to Sarah for an excellent answer.

Answer 2

Using your debit cards for emergencies can be a bad thing because most gas stations put a $75 hold on your account, even if you only get one gallon of gas. Some places may have a surcharge for using your card as a "debit."

The main reason I don't use debit cards is that if the card number is stolen, you could have your entire account wiped out before you can do anything about it. Some banks don't put the money back into your account until they're done with their investigation. I've known two people this has happened to (both at Wachovia) and it caused major headaches for them both. (For what it's worth, many credit card companies are starting to waive the $50 liability fee for fraudulent charges.)


As for closing your credit cards, you should keep your oldest card open... unless it's the evil card that charges the fee for zero balance. Is it, by chance, American Express? That's just insane, though... annual fees are EVIL. See if you can open up another credit card that doesn't have an annual fee and has low APR.

Closing bank cards can hurt your score because you increase your debt-to-credit limit ratio (because you reduce your amount of available credit) and and the length of your credit history may suffer.

I know that there are a lot of Dave Ramsey fans and those who have had horrible experience with credit cards who advise people to live without credit, but try getting a mortgage without credit! You can live within your means, you've showed that by using your debit card. If you don't like credit cards, you don't have to use them. Please don't close all of your cards... it's like a loaded gun: it's best to have and never need to use than need and not have... and it can end up hurting you if misused.

Answer 3

Sarah and Echo both brought up excellent points. Me myself, I use my debit card for everyday activities and if I have to, use my credit cards in an emergency. I agree that you shouldn't have to pay a fee if you're doing what you should do in the first place: keeping the balance managable. Even though you could get away with closing a card, keep in mind that when you do that, you're shortening your account history and your utilization (credit limits). Another thing that could do. You could use them as bargaining chips to get annual fees and interest rates lowered. Credit card companies hate it when people close their accounts becuase the competition offered something better. They'll do everything possible to keep you becuase chances are they'll have to spend that money anyway to give you an offer to get your business back. Not only you could come out with high limits, but you could also some away with lower interest rates and best of all, NO FEES. So be cautious, and continue to make good decisions with your credit

Answer 4

It's weird that cancelling a credit card can negatively influence your credit rating but it can.

When you have a credit card, your credit history shows that credit card as being fully utilized. So if you have a Visa card with a $5000 credit limit, your credit history shows that you have $5000 in debt even if there isnt one cent on the credit card bill.

When a credit analyst looks at your credit history and they see that you have say three credit cards, they see you as a person who has $15,000 in debt but there have been no delinquencies, collections, etc. In short, you look like you can handle the $15,000 debt well and have had no problems.

When you cancel a card that shows up on your credit history too--just that you cancelled and nothing else. But now it might look like that you used to handle $15,000 in debt well but you've lowered that to $10,000. So to a credit agency it might "look" like you cant handle the $15,000 debt even though to you it is only being financially sound. It's weird logic but it is what happens. When you think about it, it is the reason why a person who has never had a shred of debt in their life cant get a first credit card while the person who already has 5 credit cards has an easy time getting the sixth. The person with 5 has shown they can pay their debts. The person without a credit history has never demonstrated that even though they can be the most reliable person on the planet.

Answer 5

No, it's not bad. Having multiple credit cards is bad. Opening and closing accounts frequently would show up as negative on your report. Pick one credit card that has no fees when not being used. Doesn't your debit card have a credit card associated with it - they usually do now, and that's all you would need. Go ahead and cancel the ones you do not use.

Answer 6

because you have not any stability on your enjoying cards, why might you opt to cancel them, then get yet another card? The APR will in basic terms impact you in case you do not pay off the stability each and each month. as long as you pay it off, you will not pay any interest on your card. every time you persist with for credit, your credit history could be affected, so notice of that. merely save the enjoying cards you have, and pay off your balances each and each month (pay them a minimum of each and every week formerly they're due, to sidestep previous due fees). Doing which will save your credit interior the exceptional selection. <*)))><

Answer 7

Yes, it can affect your credit score to cancel several credit cards at once. I don't know why. Instead, cancel one now and another in 6 months, then another in a year.

Answer 8

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Answer 9

No, it's not bad. It just means that you don't need them anymore.