Should we close our major credit card account?

Question

My husband and I have a plan to have all our credit card debt paid off over the next year. We only have one major credit card and we do have a solid, healthy, excellent credit history. We are wondering if we should close our major credit card account and truly try to live off what we make w/o having that easy out of "oh just put it on the credit card."

We do have family who could loan us several thousand dollars if a true emergency arose, so it's not like we really "need" it for an emergency.

When you have a solid credit history and rating, is it okay to close out credit cards? Or will that hurt your rating? Has anyone been in this same predicament?

Answer 1

Depending on how much credit you have, closing an account will hurt your credit score. One of the variables that goes into the equation is the available credit capacity. This is a measure of constraint. If you close your account your available credit goes down and you look more constrained than you really are. To put a different spin on it, suppose you have a $0 balance and $10,000 of available credit. If you charge $10,000 of purchases, your credit gets beaten down for a couple of reasons- one of which is that you now look constrained. If you close your account, you capacity goes from $10,000 to $0 and again, you look constrained. The regression treats the two similarly, even though they are VERY different.

Keep the account open and don't use the card if you can't trust yourselves.

Answer 2

A big part of your credit score is based on the ratio of revolving debt to available credit limit. When you close credit card accounts you decrease your overall limit, thus increasing the debt percentage of any balances. Carrying balances of more than 30% kills your score. Before you consider closing any credit cards, pay off all balances first. Keep your oldest credit cards that don't charge annual fees. When you close accounts, you close the history too. While many will tell you to keep all those accounts open, I suggest that you only keep the two oldest major credit cards per person and close the rest. Your score will take a hit but it will rebound quickly. Having a stack of credit cards just for the sake of having the cards is silly and dangerous. All those cards have to be secured and monitored. They are just an opportunity for theft and fraud. If you do decide to close accounts, do it via letter and request confirmation that the account is closed and 0 balance. Closed credit card accounts have a habit of coming back to life.

Answer 3

You got a LOT of great answers up there! I particularly like Homer's...

Having a credit card that you use occasionally and pay off monthly is actually really good for your credit score.

In addition to helping to maintain a good credit history, it gives you easy access to emergency funds. A relative who is more than willing to loan you large sums of money in an emergency is great, but do you really want to be in position where you HAVE to ask someone else for money in the event of an emergency? What if whatever emergency affected you also affected them (tornado, hurricane, etc.)?What if they're on vacation (or your are) and are unavailable to help? What if you don't want them to know why you need the money?

It's just smart to stay financially independent. And as long as you pay it off every month, having a credit card is an easy way to accomplish that....

BUT if you don't trust yourself to not use it wisely, make sure it's readily accessible if you truly NEED it, but put it where you won't use it just because it's there.

By the way, congrats on going debt free! We'll be there next month... WAHOOOOO!!!

Answer 4

If you close it, after a while you will have no credit. This is not necessarily a good thing.

I keep one credit card and I use it just to keep something good active on my credit report. I pay it off every month and I do not let it get out of hand. If you can do this, you are better off keeping some sort of credit active.

If something were to happen a couple years down the road and you had to get a new car, if you have no credit you will have a higher interest rate on the loan.

Answer 5

I have heard both answers. I personally don't know. I suggest you talk with a financial adviser instead of people here. My credit cards are paid off each month. I've never had a record of bad payments. I've always paid my utilities and phone bills. I still don't have great credit. I've never spent enough to get good credit. Staying out of debt does not help your credit. Going into debt so far that you cannot pay debts also does not help your credit. If you want good credit, then you have to obviously spend. If you save up and pay cash for a car, then you will not get help on your credit. If you save up and owe a little for the car, that helps. It is stupid to have to pay all that interest to get good credit, but that is the way it works.

Talk with a professional.

Answer 6

Learn to discipline yourselves and not use the card. If need be. Lock the card up. Leave it locked up at work or in a lockbox under the bed.

The card is not the problem. Its spending.

I was in your condition a few years back. Now, I only have about 21 days until all of my credit card debt is gone. Two more paychecks. I still have both cards. Its not the cards. Its the spending. The cards sit unlocked in my cupboard, I look at them everyday. I just learned to live without having things I want, and enjoying things I need.

I have paid off 10000 in credit card debt in less than 2 years. Actually about 7000 since October.

Answer 7

You should not close a long standing credit card account that has an excellent credit history because it is likely to reduce your credit score. It is best for you to keep the account open, moderate the temptation to use it often, but use it periodically and pay it off at the end of the month. See this article and good luck!:

http://credit.about.com/od/toughcreditissues/a/closecards.htm

Answer 8

My finance teacher said closing accounts hurts you because creditors like seeing payment history the more recent it is the less risk they see in loaning you money. He said you should always try to put something on the card and just pay it off every month. If you are very responsible with your money and it sounds like you are then putting money on a credit card should not be a problem. And alll the while you will be maintaining an excelt credit score and credit history.

Answer 9

You should not close credit card accounts as they constitute a major component of your credit scoring. Possession of a credit card indicates financial stability whereas a total absence of a credit card might cause those consulting your credit record in the future to mistakenly assume that you cannot get a credit card. Using it is not as important as having it to use

Answer 10

As long as it's a no-fee card, it doesn't hurt you to keep it. It is very hard to do certain things without a card, like renting a car, in fact it may be impossible. So just keep it. As others explained, it hurts your credit rate to have no cards at all. Good for you for being willing to cancel it!