Student Credit Card Forum

[bagsnob90]

Hi there - I am close to paying off one of my two credit cards and it has been hard to do. I want to close the card once it gets paid off so I don’t get tempted to use it again but I’ve heard you shouldn’t close your credit cards. Why wouldn’t I close it? The interest rate is very high…

[Credit Card Guy]

Closing credit cards or not is a good question with several things to consider before you can say for sure. When people say you shouldn’t close a credit card they are considering two things:

Debt Ratio: Your credit score or FICO score is comprised of 5 things. One of them is your debt ratio and it counts for 30% of your score. Your debt ratio is the ratio of your available balance to your balance. If you have a total credit card limit of $1,000 and you have a total of $300 on your cards your ration is 30%. 30% is OK; less than 10% is ideal and over 75% is a big problem. Let’s say you have 2 credit cards for $1,000 each and you have $500 charged on one card. Your debt ratio is 25% which is OK. If you cancel the card with no balance then your debt ratio jumps up to 50% which could hurt your credit score.

Length of Credit History: Your credit score or FICO score also takes into consideration the length of your credit history. If the card you are going to close happens to be one you’ve had for 5 years and you other card is 6 months old, canceling the old card makes your credit history look shorter. Lenders like to see that you’ve had accounts in good standing for a good amount of time.

Now if your interest rate is high, no big deal, just don’t use the card or use it and pay it off every month or if you are worried about being irresponsible I’ve been told about somebody who froze their credit card in a cup of water so they wouldn’t use it for something stupid. You can also call your card company and request a lower APR, especially if you have no balance because you have all the chips. We recommend doing this as often as monthly. If you keep your accounts in good standing fair credit card companies will allow you to get a better rate over time.

I would cancel my card in the following cases:
1. It had an annual fee and I didn’t need the card (see if they will waive the fee first!)
2. It was a fairly new card and wouldn’t affect my length of credit history
3. It was contributing to a positive debt ratio

[juan22]

Very informative reply. Thanks.

[debbiedragon]

When I graduated college a few years ago, I had a ton of credit card debt. As I managed to pay each card off, I would close it- thinking I was helping myself by reducing the amount of credit I had available to me. It made sense to me at the time, and I wish someone had told me how wrong I was!

I ended up paying off and closing 5 credit cards within a couple months. After I did that, my credit score plummeted 17 points!! And nothing else changed- I simply paid and closed accounts.

A better way to stop using a credit card with a high interest rate might be just to cut it up and allow the account to remain open! You won't use it, but it will not hurt your score by leaving it as "available credit" in most cases. I think I would only ever close an account at this time (after my experience) if it was going to be charging me an annual fee.

Good luck!

Debbie Dragon

[Doc]

Excellent ideas. One that I have used several times was to call up the card company and ask for a lower rate, higher limit, or pretty much just anything that you want. The worse that can happen is that they say no. I talked American Express into more than doubling my credit card limit. I did not plan on spending up to the limit, but it does look much better on my credit report to have such a huge available balance.

[ProfessorPlastic]

Excellent ideas. One that I have used several times was to call up the card company and ask for a lower rate, higher limit, or pretty much just anything that you want. The worse that can happen is that they say no. I talked American Express into more than doubling my credit card limit. I did not plan on spending up to the limit, but it does look much better on my credit report to have such a huge available balance.

I did the same thing with my VISA. I called and told them I had Super Hero credit and that my repayment history was stellar! They lowered it right there on the phone. I wish they had special credit cards for us credit score rich ones! Perhaps 700 could be the cut-off. That way we all benefit and don't have to babysit the other card companies who have us mixed in with the common folk; they'd just give us the best deals cause we're totally awesome!!!!!!!!

[purplegem]

Keep your accounts open for all of the reasons above. If you think you have a crappy card or crappy APR, look at the other cards that particular bank offers, pick a card you like, then ask if you can convert to that card.

[Credit Card Guy]

Keep your accounts open for all of the reasons above. If you think you have a crappy card or crappy APR, look at the other cards that particular bank offers, pick a card you like, then ask if you can convert to that card.

I wonder if that will maintain your credit rating though. If you look at your credit report the accounts are listed by account number. A totally new credit card, even at the same company gets a new account number. You may be right. I'm going to call my credit card company tonight and ask them!