Closing credit cards and your score

[Guest]

I currently have four credit cards. I am working on paying them down using "rolldown". When that is all done I would like to keep just one of them open and close the others. Three have avail credit (now close to the max) of about 2000K. My fourth and biggest card has an avail credit of about 9000K and the balance is close to that .

My question is this: As I pay off these cards, will I hurt my credit if I close them? They are bad cards with high interest rates and it seems that every week I get an "updated policy" with more sticky traps for them to slyly make more money off of me. I WANT THEM OUT OF MY LIFE! I have heard Suze Orman say that if you close your credit cards you will eliminate your credit history. Car loans and a home loan could replace that history anyway. Plus, the credit card companies sponsor her show. Hmmm....

So what is the truth? Can I kill these buggers AFTER I pay them off? I want these evil life suckers out of mine!

[fd1626]

Scores are affected negatively initially by canceling your cards yet I would manage that by having a difference in total available credit vs balances owed. Once they are all paid off, I would cancel all but one. Some people think you do not need one yet unless you have built up large reserves, I would have one.

Once you cancel your cards, your score should go up quicker than if you still had the cards.

David

[DHK]

Closing CC's is a personal decision. If you have a balance, and you cancel your paid off cards, your score will go down because your credit utilization will increase.

$2k of $20k in limits = 10% utilization

Or

$2k of $10k in limits = 20% utilization - therefore a bigger credit risk.

Before closing out your cards, I would also ask if you have purchased a home yet? Most people need good credit in order to purchase a home and have a mortgage. Do you have sufficient emergency reserves? Or, do you have a Home Equity Line of Credit available?

If you've already got your credit needs taken care of, and you don't need any more credit AND you're happy with the credit cards you have, then cancel the ones you don't want anymore. You've graduated from credit-based finances to ----based managing cash flow finances! (A much better position to be in financially.)

You've got nothing to lose (except the money they would've taken from you if you used them).

[Mandmjames]

My understanding is that your car insurance rates are tied to your oldest credit card. You may want to hold onto the card you've had the longest in order to prevent car insurance problems as well as to provide the longest paper history. You may want to talk to your local bank branch and see if they can reccommend a credible source for credit report information. I sometimes feel like they try to keep us consumers guessing. I too look forward to paying off and cancelling a few myself! Good luck to you.

[Eric]

One thing to add:

as someone said earlier, your score is negatively effected by using a higher percentage of your available credit. Another factor is the AVERAGE length of your revolving credit lines. This means that if you cancel cards, your average length will not increase as quickly as if you kept them open, thereby making your score slightly lower than it would be if you kept the accounts open, but still slightly higher than it is now.

Related to this, having more than 4 lines of revolving credit open at a time can negatively effect your score as well, since you have too many 'lines' of credit'. So in some cases, it may be a good thing to close accounts.

I should note that the average length of revolving credit lines is a pretty small factor in most score calculations though, the other factors effect the score to a much higher degree.