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Message
Will canceling an Amex card hurt my credit?
Posted on 2/5/13 at 10:25 am
Posted on 2/5/13 at 10:25 am
MT Gurus:
I currently have an Amex gold card, and have had it for about 15 months. Its $175 a year fee, and the rewards are really more geared toward airline travel which I don't utilize that much.
I just applied for an Amex blue cash preferred card which only has a $75 annual fee and has up to 6% cash back on groceries and 3% back on gas which would pay for itself quickly.
My question is: will canceling my gold card hurt my credit too bad? I'm not really in the position to need any large loans in the near future; I have a house and a car and I don't mind a temporary credit dip.
What does MT say?
I currently have an Amex gold card, and have had it for about 15 months. Its $175 a year fee, and the rewards are really more geared toward airline travel which I don't utilize that much.
I just applied for an Amex blue cash preferred card which only has a $75 annual fee and has up to 6% cash back on groceries and 3% back on gas which would pay for itself quickly.
My question is: will canceling my gold card hurt my credit too bad? I'm not really in the position to need any large loans in the near future; I have a house and a car and I don't mind a temporary credit dip.
What does MT say?
5
Posted on 2/5/13 at 10:36 am to Swifty
It isn't the act of cancelling the card, it's reducing your available credit line.
The scoring algorithm looks into how much of your available credit you have borrowed against and owe back. So if you have a $10,000 total credit limit, and you've borrowed $4,000, you have a 40% credit utilization rate. That isn't enormous but is enough to dock you a few points.
Now suppose you close a credit card that has a $5,000 limit on it because you never use it. Now you have a total available amount of $5,000 (the original 10K - the 5K you closed) and owe $4,000. This brings your utilization rate to 80%, which is quite high and will impact your score.
Note, however, that we aren't talking about huge impacts. This is nothing like being 30 days or more late on a payment. This isn't terrible but just something to keep in mind. Plus it goes away as you pay down the debt, you don't have to wait years for anything to drop off your report.
One possibility is that you could call a different card (or apply for a new one) and get the limit raised if you can. Once that is done, dump AMEX.
The scoring algorithm looks into how much of your available credit you have borrowed against and owe back. So if you have a $10,000 total credit limit, and you've borrowed $4,000, you have a 40% credit utilization rate. That isn't enormous but is enough to dock you a few points.
Now suppose you close a credit card that has a $5,000 limit on it because you never use it. Now you have a total available amount of $5,000 (the original 10K - the 5K you closed) and owe $4,000. This brings your utilization rate to 80%, which is quite high and will impact your score.
Note, however, that we aren't talking about huge impacts. This is nothing like being 30 days or more late on a payment. This isn't terrible but just something to keep in mind. Plus it goes away as you pay down the debt, you don't have to wait years for anything to drop off your report.
One possibility is that you could call a different card (or apply for a new one) and get the limit raised if you can. Once that is done, dump AMEX.
Posted on 2/5/13 at 10:50 am to Swifty
Cancelling credit cards isn't really a good idea. A large portion of your credit score is based on credit longevitity. Even if you rarely use it, it is good to throw a couple of charges on it a month to keep it active to build the longevitiy. With that being said, you have only had the card open for 15 months and closing it will only possibly lower the score temporarily. After a few months of paying other bills on time, your score will be back to where it was. If you aren't looking to obtain a loan in the next few months and don't want to pay the 175 a year, it certainly won't kill your score to close it, but credit longevitiy is definitely a factor.
As far as the other poster saying it will hurt the amount of credit you have open. This is a true statement, but you can remedy that by requesting a credit line increase on your other cards.
As far as the other poster saying it will hurt the amount of credit you have open. This is a true statement, but you can remedy that by requesting a credit line increase on your other cards.
Posted on 2/5/13 at 11:34 am to Swifty
quote:
Will canceling an Amex card hurt my credit?
Closing your credit card accounts will almost always lower your credit score. The real reason why this lowers your score is because you won’t be able to become more indebted and pay interest on new debt. What may look like good behavior (paying off installment loans faster, closing unused revolving accounts and so on) is really frowned upon by creditors because it isn’t good for their collective bottom line. So in other words, behaving responsibly is punished under the current credit scoring systems.
A good credit score is the result … not the goal! It’s not how much you make, it how much you keep. And while it may be true to some extent to not close your unused credit cards, providing you want to stay in debt, it really doesn’t matter that much for those that are or want to be wealthy.
Posted on 2/5/13 at 12:22 pm to Swifty
quote:
My question is: will canceling my gold card hurt my credit too bad? I'm not really in the position to need any large loans in the near future; I have a house and a car and I don't mind a temporary credit dip.
What does MT say?
Should have asked to convert you current acct to blue cash preferred
Too late now... you can try to convert it to a Amex card w/ no fee
Posted on 2/5/13 at 7:20 pm to Swifty
The biggest thing to keep in mind here is that we're really talking about stuff here that isn't that big a deal. Sure, if you are "on the border" between a good and excellent score it might make a difference. But so long as you always pay on time that's the important thing.
Lenders extend their best terms to people above a certain number - let's say 750. It doesn't matter much whether you score 751 or 800. The next tier down may be at 700. Again, anywhere between 701 and 749 is all the same.
So if cancelling a credit line means your score drops five points, it may not matter at all.
Lenders extend their best terms to people above a certain number - let's say 750. It doesn't matter much whether you score 751 or 800. The next tier down may be at 700. Again, anywhere between 701 and 749 is all the same.
So if cancelling a credit line means your score drops five points, it may not matter at all.
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