Consumer Blog
Cancel your card and lower your credit score?
Missouri consumer writes:
According to Suze Ormand closing an account hurts your credit rating. Is this true?
This consumer was responding to my recent post that said when you're finished with your credit card, don't just throw it away - close the account. The answer to the question is yes, canceling a credit card can lower your credit score.
The score is based on several factors, including amount of available credit. Having too much or too little can lower your score. So when you cancel a credit card, depending on how much other available credit you have, it may affect your score.
Regardless, we say cancel the account, rather than face possible identity theft and credit card fraud. An open credit card account that you don't need is a problem waiting to happen. Remember that you only need to worry about your credit score if you plan on major changes soon - new loan, new job, new insurance policy. You can unnecessarily become obsessed with your score. A friend recently fretted to me that her credit score is lower than she'd like. She is in her late 60s and owns her home. She doesn't need to be worrying about her credit score.
Technorati Tags: cancel credit card, credit, credit rating, credit score, moagoconsumer, consumer protection
Posted by on June 27, 2007 12:25 pm :: Comments (2) :: Permalink
2 Responses to "Cancel your card and lower your credit score?"
says:
July 17, 2007 2:15 pm
Wrong advice. You nearly 70 year old friend who doesn't need to be worrying about her credit score....does she pay home owner's insurance? Does she still drive and pay car insurance? Don't you, of all people, realize what a credit score does to ones insurance rates?
says:
August 10, 2007 11:47 pm
"Remember that you only need to worry about your credit score if you plan on major changes soon - new loan, new job, new insurance policy. You can unnecessarily become obsessed with your score."
I do not agree with that quote. It's not just about the score...it's about living in a world of "default" adverse actions.
You just cut up and closed an account with creditor (A) that was contributing to age and utilization. Now your score drops because the account is closed. You've been carrying a revolving balance on a low interest credit card with creditor (B). (B) sees your score dropped. (B) sends you an adverse action notice that your current interest rate on that revolving balance is being increased to 25-35%.
Your insurance premium is now due. Your score has decreased and now puts you in a higher risk bracket so your premiums have just increased as well.
I certainly understand your thinking when it comes to ID Theft BUT there are many other factors to consider before closing that account or they may have just started an avalanche thay can't get out from under.
