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Does canceling a credit card drop your scores?


TomnTex
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I had always heard that if you cancel a credit card or whatever, that it will ding your credit score? Any truth to this, and if s,o how much, and for how long? A while back I had posted that I have several credit cards, all with an interest rate of 7 to 8 per cent. But, because I decided to get some new cards with a bank that I do major business with, I decided to get some new ones. Low and behold, they gave me a $9,000.00 limit, but with a 19.99 interest rate after a one year of 0 interest.

 

When I got those cards several months ago, I told my wife they were going in the drawer and not to be used. Well, tonight I got to thinking about those cards and I dug them out and called the issuing company. After telling them I was not happy about the high intrest rate having several that were below 10 per cent, that I would just close that account having never used it. Guess I suprised that ole gal, canceling cards with a 9K limit.

 

I mean, I own two house three cars, never been late on a payment and my scores with the bureaus are all in the low 700 range or higher. So, why I got such a high interest rate I don't know! All of my cards but one are either paid off or have just a few dollars on them that I pay off each month. One card has over a 12K limit, so someone likes me.....lol.

 

Anyway, it was bugging me that they socked me with a high limit and after canceling I wanted to know if anyone else has ever had a problem like this. And if they canceled, did it drop your scores. I did tell the gal to make sure it showed, canceled at customers request. Any thoughts?

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Guest usctrojanalum

I would've kept it to be honest, having a 9k limit lowers your overall debt utilization even if you never use the card. I would have maybe just used the card once per month for dining, to fill a gas tank or something and thereafter pay it in full.

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Since the whole purpose of the FICO sucker score is to identify people that CC companies will make money on, "utilization" does play a part in the sucker score...but...it only counts if you carry a balance, not if you use the card. As with most of the common knowledge about credit scoring, the words don't mean what we want them to.

(Now, to be fair...CCs do collects from vendors a percentage of what their customers charge, but its in the 2-6% range. CCs are much more interested in the 10-30% they get from customers who carry balances).

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Thanks guys. Just got off the phone with the CC company, told him that I had removed almost ten thousand from savings and was closing my accounts with the bank. That I would be moving my accounts else where. Didn't seem to bother him. I kind of got mad this morning....lol. He couldn't explain why I had a 19.99 interest rate applied to me. He did say that just closing one or two accounts should not drop my score, but, when you close a bunch at one time he said it would drop it. Thanks for the input. I am going back to credit unions, like them a lot better.

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@willingtocope: if you use your card every month, AND pay the total due from the previous month, every month, your utilization will show whatever the amount billed monthly is.

 

So, in the above example of a $9K credit line: the OP charges 2,000/month. He gets 2,000 frequent flyer miles (or more) for those $2,000. He pays the $2,000, every month. And his CRs will all show a utilization of $2,000, because there is a new $2,000, every month on his bill, after paying off the $2,000 from the month before.

 

At $2,000, BTW, he's below 25% utilization, which is consider the golden goose for credit. You are using it, but only a small portion of it.

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The thing I didn't like was having that 19.99 per cent interest rate hanging around my neck even if I did pay it off each month. The thing I worried about was if something came up and I couldn't pay it in full that month or the next. Then that rate kicked in. I am just happy that I have several with a rate of 7 to 8 per cent. We have at least two, maybe three credit unions in our area. Next week I will look at moving everything there. I appreciate y'alls input on this.

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@TomnTex: I understand your POV. Especially for those of us who had issues with using credit in the past, the idea of having a balance because we somehow overspent is scary.

 

One of the things that my husband and I do to avoid this for future issues is that we discuss any biggish, like over $50, spending that isn't usual. Obviously we don't freak over the utility bills, etc, because they are what they are, you know?

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  • 2 weeks later...

Well, just a follow up on my situation. As I mentioned, I canceled a new credit card that I had been issued by a bank that I had done business with for three years, they had given me a nine thousand credit limit for 19.99% on it. Did not like that, so cancelled the cards, started moving my accounts over to a credit union and, before even putting a dime in the accounts they approved me a credit limit of fifteen thousand at 8.2%. A lot more reasonable, I do prefer the credit unions over banks.

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  • 1 month later...

I think that you ultimately did the right thing – and I would hope that more people would follow. Some of these banks have taken the whole ‘too big to fail’ thing a little too seriously and will try to stick it to you as much as possible. Glad to see that you decided to take action.

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