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Started By
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 10:46 am to foshizzle
Thanks for the info, I didn't realise it came down to credit utilization rates.
With that in mind, these are both charge cards with no pre set limits. I haven't ever carried a balance on the gold card because the full payment is due at the end of each month per the terms of a charge card.
Will they take some sort of rolling monthly average balance to decide the credit they extended to me to calculate in with total credit utilization?
Thanks!
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 10:52 am to Swifty
quote:
With that in mind, these are both charge cards with no pre set limits. I haven't ever carried a balance on the gold card because the full payment is due at the end of each month per the terms of a charge card.
Will they take some sort of rolling monthly average balance to decide the credit they extended to me to calculate in with total credit utilization?
The way they determine it is simply when the credit card company submits your information to the credit bureau. They pull it out in the middle of the month, if you owe 3,000 and have 5,000 limit it will show that, regardless of whether or not you pay it off in full every month. To the bureaus it is still perceived as a risk that you are charging up that much against your line of credit in one month. They won't know that you pay it off in full necessarily because it all depends on when the credit card company submits your information.
Posted on 2/5/13 at 10:58 am to PurpleAndGold86
quote:
Cancelling credit cards isn't really a good idea. A large portion of your credit score is based on credit longevitity
This is true. Another part of some algorithms includes some average age of credit lines - to bolster against opening a large number of lines at once (which reduces your credit utilization rate). So, I would at least wait until your new credit line is up, running and you have a length of time to balance out the loss of the long-standing card. If you're not planning a major credit application in the next 24/36 months, this may be of less concern - but "the more you know", right?
The only thing about Amex - if you EVER cross them - you're dead to them. Just saying...
Posted on 2/5/13 at 11:13 am to Ace Midnight
quote:
The only thing about Amex - if you EVER cross them - you're dead to them. Just saying...
Lol, good to know also. Thanks!
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 11:36 am to PurpleAndGold86
quote:
but credit longevitiy is definitely a factor.
Since this credit card for him has only been open for 15 months, it could be lowering his average age of open credit line accounts, which could be lowering his score.
Posted on 2/5/13 at 11:37 am to Will Cover
quote:
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.
This couldn't possibly be anymore inaccurate.
Posted on 2/5/13 at 11:39 am to Will Cover
quote:
Since this credit card for him has only been open for 15 months, it could be lowering his average age of open credit line accounts, which could be lowering his score.
They don't look at the average. They are looking at how long you have had a credit line open. If the 15 months this card has been open is the longest line of credit he has had open, they will look at his next card. If it happens to only be 3 months, that will be the length of time they now use in determining his longevitiy.
Posted on 2/5/13 at 11:39 am to Will Cover
quote:
Since this credit card for him has only been open for 15 months, it could be lowering his average age of open credit line accounts, which could be lowering his score.
They don't look at the average. They are looking at how long you have had a credit line open. If the 15 months this card has been open is the longest line of credit he has had open, they will look at his next card. If it happens to only be 3 months, that will be the length of time they now use in determining his longevitiy.
Leaving a credit card open will not negatively effect your credit score because of longevity.
This post was edited on 2/5/13 at 11:41 am
Posted on 2/5/13 at 11:43 am to PurpleAndGold86
This thread just shows how overly complex and silly credit scores are (at a certain point).
Posted on 2/5/13 at 11:45 am to PurpleAndGold86
quote:
This couldn't possibly be anymore inaccurate.
quote:
Paying off your debt could "hurt" your credit score slightly if you have zero balances on all of your revolving accounts at the same time. That penalty would disappear once you use your cards again.
Source: BankRate
This post was edited on 2/5/13 at 11:46 am
Posted on 2/5/13 at 11:47 am to LSUtoOmaha
quote:
This thread just shows how overly complex and silly credit scores are (at a certain point).
The gist of the score is to determine how risky you are to give credit to. It doesn't have to be complex. The basic premise is to not open and close a bunch of different lines of credit and to pay your bills on time, in full, each month.
Posted on 2/5/13 at 11:48 am to Will Cover
quote:
Paying off your debt could "hurt" your credit score slightly if you have zero balances on all of your revolving accounts at the same time. That penalty would disappear once you use your cards again.
Source: BankRate
That isn't what you said at all. If you think it is, you dont understand exactly what you just quoted.
Posted on 2/5/13 at 11:49 am to PurpleAndGold86
What is complex is not what affects your score, but the magnitude of the effect. In this thread alone we have very financially savvy people arguing this exact point.
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 12:42 pm to BACONisMEATcandy
quote:
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
What Bacon said, just call them up and tell them you don't want to pay the fee anymore and want to switch to a free card.
Posted on 2/5/13 at 1:27 pm to TigerRob20
quote:
What Bacon said, just call them up and tell them you don't want to pay the fee anymore and want to switch to a free card.
I tried that, they said that I needed to apply for the other card separately.
I have had a visa credit card for about 5 years now that would be a good measure of longivity vs. my gold card.
But after reading your answers (thank you for the help) I still don't have a good sense of how a standard credit line and a charge card with no limit are different in their effect on someones credit. Can anyone shed some light on this?
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