Author Topic: Is closing a credit account ever a good idea?  (Read 7367 times)

MVal

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Is closing a credit account ever a good idea?
« on: September 11, 2015, 11:27:43 AM »
Hey, I know the general advice is don't close your old credit card accounts because it might make your credit score go down. What if you have a credit account you opened many years ago, used one time and then never again? And the thing was, I moved right after opening it, so I somehow didn't get the bill and didn't realize I still had a small balance. When they did finally contact me, I had a late fee and now that is still showing as a bad mark on my credit report. If I close the account, that still won't get it off my credit report will it? Do I just have to wait for 7 years to pass?

I'm never going to use this account again, and never really used it anyway. Can I close it, or would it be better to leave it open?

BTW, my current FICO score is 701, per my other credit card company that gives it to me for free. It used to be over 750, and I'd like to get it there again. I have no debt now except for a small credit card balance, under $800.

johnny847

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Re: Is closing a credit account ever a good idea?
« Reply #1 on: September 11, 2015, 11:39:59 AM »
So long as there is no annual fee there isn't really a reason to close a credit card.
If it makes yiu happy to tie up loose ends then maybe. But as this is one of your older cards, if keep it around for the average age of account.

And no, a bad mark won't fall off your report just because you close the account. It'd be too easy to game the system if it did.

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Re: Is closing a credit account ever a good idea?
« Reply #2 on: September 11, 2015, 11:41:29 AM »
I close mine, I don't like the lose end/theft risk

But I just close the card and not account. So if I want another card later on, it is easier since I don't have to make a new "account" with them.
I have about a $100k credit limit between 3 cards, crazy :S but I keep them as my "emergency" fund. I can live off it for about 3 years while slowly selling investments to pay it off. But I can't foresee this happening but it's my backup plan to my emergency savings.

I don't spend enough to care much about the "reward" points, I mean sure I have them on cards, but I use discover for 1% instead of another card for 2% because that 1% difference is about $100/year difference. Since I make that back in a matter of hours on the job, I don't value that $ over me liking the customer service/website. Yes, I know it is "lost" money, do I care? Not really.
« Last Edit: September 11, 2015, 11:47:55 AM by eyem »

KittyCat

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Re: Is closing a credit account ever a good idea?
« Reply #3 on: September 11, 2015, 11:50:40 AM »
But I just close the card and not account. So if I want another card later on, it is easier since I don't have to make a new "account" with them.
I have about a $100k credit limit between 3 cards, crazy :S but I keep them as my "emergency" fund. I can live off it for about 3 years while slowly selling investments to pay it off. But I can't foresee this happening but it's my backup plan to my emergency savings.
Oh, interesting; I assumed that the card and account were pretty much one and the same. Learned something new :)

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Re: Is closing a credit account ever a good idea?
« Reply #4 on: September 11, 2015, 12:07:14 PM »
well, i cancel the card, not sure if saying closing it is the same, but same end result to me

but it keeps my decade old account active with no cards on it
Quote
Oh, interesting; I assumed that the card and account were pretty much one and the same. Learned something new :)
not really, just like how you can have multiple cards on one account, the account is just where the cards are "hooked" into their system. You can have zero cards but keep the account. And when I open new cards, each of those cards gets me treated like I've been there for as old as the account is, even if I'm a "new customer" for the rewards, i get treated like an old one when i call customer service because I have "been" their customer all along, without using their product...

I have accounts with discovercard/amex/visa/mastercard, but I only have 3 cards right now, really 2 since one is an "online" card only.
« Last Edit: September 11, 2015, 12:20:08 PM by eyem »

Zx

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Re: Is closing a credit account ever a good idea?
« Reply #5 on: September 11, 2015, 12:10:11 PM »
I have one card that has an annual fee, from back when my credit was shot and I was addicted to consumer anxiety attacks with my credit cards.

I suppose I should close that account now.

Retire-Canada

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Re: Is closing a credit account ever a good idea?
« Reply #6 on: September 11, 2015, 12:22:25 PM »
I close my accounts and kill cards I no longer need want. My credit score is great. I don't need it to be a few points higher.

Keeping things simple makes me happy.

charis

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Re: Is closing a credit account ever a good idea?
« Reply #7 on: September 11, 2015, 12:33:10 PM »
I keep my oldest accounts open and regularly close newer lines of credit card accounts.  It hasn't hurt my score at all. 

Gone Fishing

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Re: Is closing a credit account ever a good idea?
« Reply #8 on: September 11, 2015, 12:34:26 PM »
Are there not cases when you can close an account then circle back around, open a new account and get the bonus again after a year or so?
« Last Edit: September 11, 2015, 12:38:07 PM by So Close »

KittyCat

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Re: Is closing a credit account ever a good idea?
« Reply #9 on: September 11, 2015, 12:36:17 PM »
well, i cancel the card, not sure if saying closing it is the same, but same end result to me

but it keeps my decade old account active with no cards on it
Quote
Oh, interesting; I assumed that the card and account were pretty much one and the same. Learned something new :)
not really, just like how you can have multiple cards on one account, the account is just where the cards are "hooked" into their system. You can have zero cards but keep the account. And when I open new cards, each of those cards gets me treated like I've been there for as old as the account is, even if I'm a "new customer" for the rewards, i get treated like an old one when i call customer service because I have "been" their customer all along, without using their product...

I have accounts with discovercard/amex/visa/mastercard, but I only have 3 cards right now, really 2 since one is an "online" card only.
Thanks for the explanation!

I have one card that has an annual fee, from back when my credit was shot and I was addicted to consumer anxiety attacks with my credit cards.

I suppose I should close that account now.
The sooner the better :)

I keep my oldest accounts open and regularly close newer lines of credit card accounts.  It hasn't hurt my score at all. 
Wouldn't regularly opening new accounts with hard credit pulls lower the score though?

JLee

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Re: Is closing a credit account ever a good idea?
« Reply #10 on: September 11, 2015, 12:41:05 PM »
Are there not cases when you can close an account then circle back around, open a new account and get the bonus again after a year or so?

I thought it was two years, but yes.

charis

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Re: Is closing a credit account ever a good idea?
« Reply #11 on: September 11, 2015, 12:55:33 PM »
Wouldn't regularly opening new accounts with hard credit pulls lower the score though?

It's suppose to, but the only lowering I've observed is brief and my score it still close to the highest its every been, 800.

KittyCat

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Re: Is closing a credit account ever a good idea?
« Reply #12 on: September 11, 2015, 12:59:24 PM »
It's suppose to, but the only lowering I've observed is brief and my score it still close to the highest its every been, 800.
Interesting... Very nice! I may dabble a little in this in the future then

tvan

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Re: Is closing a credit account ever a good idea?
« Reply #13 on: September 11, 2015, 12:59:43 PM »
Are there not cases when you can close an account then circle back around, open a new account and get the bonus again after a year or so?

I thought it was two years, but yes.

Usually yes.



Closing an old account, imo, is generally not a good idea.  'Age of Credit History' generally has a medium impact on your credit score.  Which means old accounts = good.  New accounts = bad. 

Closing accounts also inherently increases your credit utilization (assuming you buy some things on credit).  Which past a certain % = bad. 

If you want to close an account, look to your newer cards first.  Although be wary since most people generally have high limits on new cards (which means it will have a greater impact on credit utilization if you close it). 


As an aside question - Does anyone know if 'Age of Credit History' is weighted by credit limit? 


Axecleaver

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Re: Is closing a credit account ever a good idea?
« Reply #14 on: September 11, 2015, 01:09:49 PM »
Quote
Is 'Age of Credit History' weighted by credit limit?
No. The metric is based on age of the oldest account, so it's OK to close newer accounts. Although this appears as "Age of credit history" in places, after closing my oldest credit account a few years ago when they instituted a fee, I took an 80 point hit from a score in the 800's. I looked into it in more detail and learned that Fair Isaac doesn't actually look at length of credit history, they look at the age of your oldest account. I've never gotten all of that score back, currently around 780.

Also make sure that closing an account doesn't lower your debt/credit ratio below 30%. I've heard anecdotally that lots of open credit can lower your score, but I couldn't find any evidence of that.

johnny847

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Re: Is closing a credit account ever a good idea?
« Reply #15 on: September 11, 2015, 01:38:50 PM »
Are there not cases when you can close an account then circle back around, open a new account and get the bonus again after a year or so?

I thought it was two years, but yes.

It varies by issuer. That's the rule for chase. It appears for Barclay that you don't need to wait some minimum time to get the bonus again. Amex is once per lifetime.
Just read the terms and conditions for each offer
« Last Edit: September 11, 2015, 02:13:14 PM by johnny847 »

KittyCat

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Re: Is closing a credit account ever a good idea?
« Reply #16 on: September 11, 2015, 01:59:42 PM »
No. The metric is based on age of the oldest account, so it's OK to close newer accounts. Although this appears as "Age of credit history" in places, after closing my oldest credit account a few years ago when they instituted a fee, I took an 80 point hit from a score in the 800's. I looked into it in more detail and learned that Fair Isaac doesn't actually look at length of credit history, they look at the age of your oldest account. I've never gotten all of that score back, currently around 780.

I just realized that I was under the impression that it was based off of average age. Good to know :)

tvan

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Re: Is closing a credit account ever a good idea?
« Reply #17 on: September 11, 2015, 02:17:09 PM »
Quote
Is 'Age of Credit History' weighted by credit limit?
No. The metric is based on age of the oldest account, so it's OK to close newer accounts. Although this appears as "Age of credit history" in places, after closing my oldest credit account a few years ago when they instituted a fee, I took an 80 point hit from a score in the 800's. I looked into it in more detail and learned that Fair Isaac doesn't actually look at length of credit history, they look at the age of your oldest account. I've never gotten all of that score back, currently around 780.

Also make sure that closing an account doesn't lower your debt/credit ratio below 30%. I've heard anecdotally that lots of open credit can lower your score, but I couldn't find any evidence of that.

Thanks.  Are you sure though?  I'm almost positive CreditKarma displays it as an average. Perhaps it's different by credit rating agency?

johnny847

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Re: Is closing a credit account ever a good idea?
« Reply #18 on: September 11, 2015, 02:32:50 PM »
Quote
Is 'Age of Credit History' weighted by credit limit?
No. The metric is based on age of the oldest account, so it's OK to close newer accounts. Although this appears as "Age of credit history" in places, after closing my oldest credit account a few years ago when they instituted a fee, I took an 80 point hit from a score in the 800's. I looked into it in more detail and learned that Fair Isaac doesn't actually look at length of credit history, they look at the age of your oldest account. I've never gotten all of that score back, currently around 780.

Also make sure that closing an account doesn't lower your debt/credit ratio below 30%. I've heard anecdotally that lots of open credit can lower your score, but I couldn't find any evidence of that.

Thanks.  Are you sure though?  I'm almost positive CreditKarma displays it as an average. Perhaps it's different by credit rating agency?

People need to stop relying on Credit Karma. Credit Karma provides an estimate of your credit score. It is NOT your true credit score.

It has consistently underestimated by credit score by ~40 points for the past six months. I get my true TransUnion credit score from Barclays, and my true Experian (or was it Equifax..pretty sure it's Experian though) credit score from Amex.

FIRE me

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Re: Is closing a credit account ever a good idea?
« Reply #19 on: September 11, 2015, 09:01:48 PM »
Your FICO score will always be better off to leave an old paid off account open. It does two good things for your score. An old account increases the average age of your accounts (which adds FICO points). A paid off account lowers your credit utilization ratio (which adds FICO points).

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

vivek440

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Re: Is closing a credit account ever a good idea?
« Reply #20 on: September 13, 2015, 11:58:35 AM »
But I just close the card and not account. So if I want another card later on, it is easier since I don't have to make a new "account" with them.
I have about a $100k credit limit between 3 cards, crazy :S but I keep them as my "emergency" fund. I can live off it for about 3 years while slowly selling investments to pay it off. But I can't foresee this happening but it's my backup plan to my emergency savings.
Oh, interesting; I assumed that the card and account were pretty much one and the same. Learned something new :)
+1 Learned something new today! Thanks!

tvan

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Re: Is closing a credit account ever a good idea?
« Reply #21 on: September 13, 2015, 06:57:22 PM »

Quote
Is 'Age of Credit History' weighted by credit limit?
No. The metric is based on age of the oldest account, so it's OK to close newer accounts. Although this appears as "Age of credit history" in places, after closing my oldest credit account a few years ago when they instituted a fee, I took an 80 point hit from a score in the 800's. I looked into it in more detail and learned that Fair Isaac doesn't actually look at length of credit history, they look at the age of your oldest account. I've never gotten all of that score back, currently around 780.

Also make sure that closing an account doesn't lower your debt/credit ratio below 30%. I've heard anecdotally that lots of open credit can lower your score, but I couldn't find any evidence of that.

Thanks.  Are you sure though?  I'm almost positive CreditKarma displays it as an average. Perhaps it's different by credit rating agency?

People need to stop relying on Credit Karma. Credit Karma provides an estimate of your credit score. It is NOT your true credit score.

It has consistently underestimated by credit score by ~40 points for the past six months. I get my true TransUnion credit score from Barclays, and my true Experian (or was it Equifax..pretty sure it's Experian though) credit score from Amex.

That doesn't mean the estimate is vastly incorrect for everyone else. Citibank gives me my FICO free and it's within 5 points.


johnny847

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Re: Is closing a credit account ever a good idea?
« Reply #22 on: September 13, 2015, 10:41:58 PM »

Quote
Is 'Age of Credit History' weighted by credit limit?
No. The metric is based on age of the oldest account, so it's OK to close newer accounts. Although this appears as "Age of credit history" in places, after closing my oldest credit account a few years ago when they instituted a fee, I took an 80 point hit from a score in the 800's. I looked into it in more detail and learned that Fair Isaac doesn't actually look at length of credit history, they look at the age of your oldest account. I've never gotten all of that score back, currently around 780.

Also make sure that closing an account doesn't lower your debt/credit ratio below 30%. I've heard anecdotally that lots of open credit can lower your score, but I couldn't find any evidence of that.

Thanks.  Are you sure though?  I'm almost positive CreditKarma displays it as an average. Perhaps it's different by credit rating agency?

People need to stop relying on Credit Karma. Credit Karma provides an estimate of your credit score. It is NOT your true credit score.

It has consistently underestimated by credit score by ~40 points for the past six months. I get my true TransUnion credit score from Barclays, and my true Experian (or was it Equifax..pretty sure it's Experian though) credit score from Amex.

That doesn't mean the estimate is vastly incorrect for everyone else. Citibank gives me my FICO free and it's within 5 points.

I realize that. But because it is merely an estimate, it has the potential to be off by quite a bit. People should use sources of their actual score. Such as their cc issuing bank. Not credit karma.
Credit karma is great for viewing the contents of your report without having to use that free report per year from each bureau. But to treat the estimate as the truth is a mistake.

Scandium

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Re: Is closing a credit account ever a good idea?
« Reply #23 on: September 14, 2015, 08:47:04 AM »
Your FICO score will always be better off to leave an old paid off account open. It does two good things for your score. An old account increases the average age of your accounts (which adds FICO points). A paid off account lowers your credit utilization ratio (which adds FICO points).

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

Interesting. That show that age of credit is only 15%.

Also say that "credit utilization" is based on balance of last statement. So if I have a particlualrily large amount on my card, say from a car or appliance purchase, should I pay that of before I get the bill? Would that keep that amount of the balance? (I ask because I just bought a car, a fridge and am about to close a $21k limit card used for churning..)

frugaliknowit

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Re: Is closing a credit account ever a good idea?
« Reply #24 on: September 14, 2015, 08:53:44 AM »
In your case, your credit score is (only) 701, so I would definitely not close the account.  Maybe after the late payment rolls off.  You probably want your score over 740 or 750 for the best terms.

Bracken_Joy

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Re: Is closing a credit account ever a good idea?
« Reply #25 on: September 14, 2015, 09:20:50 AM »

Quote
Is 'Age of Credit History' weighted by credit limit?
No. The metric is based on age of the oldest account, so it's OK to close newer accounts. Although this appears as "Age of credit history" in places, after closing my oldest credit account a few years ago when they instituted a fee, I took an 80 point hit from a score in the 800's. I looked into it in more detail and learned that Fair Isaac doesn't actually look at length of credit history, they look at the age of your oldest account. I've never gotten all of that score back, currently around 780.

Also make sure that closing an account doesn't lower your debt/credit ratio below 30%. I've heard anecdotally that lots of open credit can lower your score, but I couldn't find any evidence of that.

Thanks.  Are you sure though?  I'm almost positive CreditKarma displays it as an average. Perhaps it's different by credit rating agency?

People need to stop relying on Credit Karma. Credit Karma provides an estimate of your credit score. It is NOT your true credit score.

It has consistently underestimated by credit score by ~40 points for the past six months. I get my true TransUnion credit score from Barclays, and my true Experian (or was it Equifax..pretty sure it's Experian though) credit score from Amex.

That doesn't mean the estimate is vastly incorrect for everyone else. Citibank gives me my FICO free and it's within 5 points.

Interesting. I've never had a chance to compare before, but now AmEx provides a FICO score online. It's 39 points higher than Credit Karma estimates! At least that's a GOOD direction though.

I agree though, it helps with credit report elements, and trends, if not the actual score.

johnny847

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Re: Is closing a credit account ever a good idea?
« Reply #26 on: September 14, 2015, 11:05:27 AM »
Your FICO score will always be better off to leave an old paid off account open. It does two good things for your score. An old account increases the average age of your accounts (which adds FICO points). A paid off account lowers your credit utilization ratio (which adds FICO points).

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

Interesting. That show that age of credit is only 15%.

Also say that "credit utilization" is based on balance of last statement. So if I have a particlualrily large amount on my card, say from a car or appliance purchase, should I pay that of before I get the bill? Would that keep that amount of the balance? (I ask because I just bought a car, a fridge and am about to close a $21k limit card used for churning..)

If you want to reduce your credit utilization, yes, pay that off before you get the bill.

But it's only a snapshot in time. It only takes into account your last month's utilization, not some weighted history of your past year's utilization or something along those lines. So if your utilization is particularly high one month, just make sure your cc closes with a lower balance next month. It's not a big deal unless you want to apply for new credit while your utilization is reported as high.

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Re: Is closing a credit account ever a good idea?
« Reply #27 on: September 14, 2015, 11:10:19 PM »
Your FICO score will always be better off to leave an old paid off account open. It does two good things for your score. An old account increases the average age of your accounts (which adds FICO points). A paid off account lowers your credit utilization ratio (which adds FICO points).

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

Interesting. That show that age of credit is only 15%.

Also say that "credit utilization" is based on balance of last statement. So if I have a particlualrily large amount on my card, say from a car or appliance purchase, should I pay that of before I get the bill? Would that keep that amount of the balance? (I ask because I just bought a car, a fridge and am about to close a $21k limit card used for churning..)

If you want to reduce your credit utilization, yes, pay that off before you get the bill.

But it's only a snapshot in time. It only takes into account your last month's utilization, not some weighted history of your past year's utilization or something along those lines. So if your utilization is particularly high one month, just make sure your cc closes with a lower balance next month. It's not a big deal unless you want to apply for new credit while your utilization is reported as high.

seems like a lot fo work :S don't people just increase their limit on a regular basis? At $30k on a card, I'd be hard pressed to hit even 10% in a month

johnny847

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Re: Is closing a credit account ever a good idea?
« Reply #28 on: September 15, 2015, 07:54:33 AM »
Your FICO score will always be better off to leave an old paid off account open. It does two good things for your score. An old account increases the average age of your accounts (which adds FICO points). A paid off account lowers your credit utilization ratio (which adds FICO points).

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

Interesting. That show that age of credit is only 15%.

Also say that "credit utilization" is based on balance of last statement. So if I have a particlualrily large amount on my card, say from a car or appliance purchase, should I pay that of before I get the bill? Would that keep that amount of the balance? (I ask because I just bought a car, a fridge and am about to close a $21k limit card used for churning..)

If you want to reduce your credit utilization, yes, pay that off before you get the bill.

But it's only a snapshot in time. It only takes into account your last month's utilization, not some weighted history of your past year's utilization or something along those lines. So if your utilization is particularly high one month, just make sure your cc closes with a lower balance next month. It's not a big deal unless you want to apply for new credit while your utilization is reported as high.

seems like a lot fo work :S don't people just increase their limit on a regular basis? At $30k on a card, I'd be hard pressed to hit even 10% in a month

A lot of work? Instead of paying off your bill by the due date, you pay it off a month earlier, before the statement closes. I don't find that to be difficult.
Furthermore, with some banks, they will waive your balance if your statement closes with a low enough balance. For Barclays the threshold is 99 cents. For Capital One, $1. For Discover, a nice fat $2. I always do this. For a card I actively use with a low balance waiver, I pay down my balance before the statement closes. For a card that is sock drawered and gets a low balance waiver, I've set up Amazon allowances to automatically buy an Amazon gift card equal to the waiver threshold once a month. It's all automated. Easy peasy.

And no, I don't think people just increase their limit on a regular basis. It's quite possible I'm wrong about this, but at some point each person is going to have more credit than they ever
care for. Like you at $30k. Would you keep trying to increase your credit? I sincerely doubt it, considering your remark it's hard to hit even 10% in a month.

Finally, notice how I said " It's not a big deal unless you want to apply for new credit while your utilization is reported as high."

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Re: Is closing a credit account ever a good idea?
« Reply #29 on: September 15, 2015, 12:59:19 PM »
I keep increasing my limit because I want to see how high I can get it :S I might not do it for the credit utilization ratio, but more because I want to know what they will foolishly lend to other people. I usually spend about $300-500 a month outside of rent so I don't use a lot. But I like having a high limit. Discover card also auto increases it for me anyway so I don't really do much. I got to $15k without doing anything, the last half I just kept increasing twice a year.

I automate the payments so to have to pay it twice a month instead of once is more work :D

johnny847

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Re: Is closing a credit account ever a good idea?
« Reply #30 on: September 15, 2015, 01:13:36 PM »
I keep increasing my limit because I want to see how high I can get it :S I might not do it for the credit utilization ratio, but more because I want to know what they will foolishly lend to other people. I usually spend about $300-500 a month outside of rent so I don't use a lot. But I like having a high limit. Discover card also auto increases it for me anyway so I don't really do much. I got to $15k without doing anything, the last half I just kept increasing twice a year.

I automate the payments so to have to pay it twice a month instead of once is more work :D

So you're doing it for shits and giggles .Which is fun, I've done that before too. But I hardly believe the average person does this on purpose.

And no, you pay once a month .Before the statement closes .I still fail to see how this is more work .

Jags4186

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Re: Is closing a credit account ever a good idea?
« Reply #31 on: September 15, 2015, 04:55:39 PM »
I only close cards for 2 reasons:

1) there's no option to downgrade to a no-fee version once the annual fee comes due and I can't justify the AF.

OR

2) I need to close a card to get the issuer to give e a new card.

Otherwise, if there's no annual fee and I'm not bumping up against an issuer credit limit or card limit, I'll sock draw my cards that I'm not currently using.

yyc-phil

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Re: Is closing a credit account ever a good idea?
« Reply #32 on: October 02, 2015, 09:49:13 AM »
I cancel credit card accounts that have an annual fee after I get the welcome bonuses and/or used the points/offers, and before the annual fee kicks in. For no-fee cards, I keep a couple open just in case after cashing in on the bonus/offer, but close all the others.

Schaefer Light

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Re: Is closing a credit account ever a good idea?
« Reply #33 on: October 02, 2015, 11:50:59 AM »
I cancel credit card accounts that have an annual fee after I get the welcome bonuses and/or used the points/offers, and before the annual fee kicks in. For no-fee cards, I keep a couple open just in case after cashing in on the bonus/offer, but close all the others.
Same here.  I close them as soon as the annual fee is due.