Closing CC accounts HURTS credit??

[Contrariety]

I have a CC with about $3400 on it through citibank. Obviously, citi SUCKS these days and have just sent me my third notice this year that they are raising my interest rate to 19%. i have called to complain before and they kept my normal rate, but I'm not going to do it anymore.

i'm thinking of applying for a discover with a 0% interest on balance transfers for 12 mos offer. I assume it won't be a problem to get the card since i have good credit and have never missed a payment on anything nor ever made a late payment. They send me these offers in the mail all the time.

so my question is if i close my citi account, will it negatively affect my credit to the point that I should keep it open? DH and i are planning to buy a used car sometime this coming year and we will have to finance at least part of it, so I would like my credit to look as good as possible.

thoughts?

[Maluhia]

Closing it can be bad as in they want to see long relationships with carriers, so transfer all but $5 or something and keep the acct.

[Dingletwitz]

might consider the balance transfer but then aggressively get rid of the balance before your 0% is up--like pay off the balance over the year. discover will likely jack it up over time too....and be careful about using the card once you get it..sometimes the interest rate actually leaves the 0% behind for a higher percentage if you use it or don't use it depending on the card.

[russsk]

I would do the balance transfer. That's how I paid off all my cc debt a few years ago. But you have to be really vigilant about not charging anything else to the card until you pay it off, and make sure you can pay it off before the end of the promo period. CC companies make these offers because they make a lot of money when card holders don't pay the balance off at 0%. I would also leave the Citi account open with a $0 balance. Closing that account won't help your credit.

[Logan's Mom]

Originally Posted by russsk

I would do the balance transfer. That's how I paid off all my cc debt a few years ago. But you have to be really vigilant about not charging anything else to the card until you pay it off, and make sure you can pay it off before the end of the promo period. CC companies make these offers because they make a lot of money when card holders don't pay the balance off at 0%. I would also leave the Citi account open with a $0 balance. Closing that account won't help your credit.

[cschick]

Originally Posted by Contrariety

I have a CC with about $3400 on it through citibank. Obviously, citi SUCKS these days and have just sent me my third notice this year that they are raising my interest rate to 19%. i have called to complain before and they kept my normal rate, but I'm not going to do it anymore.

i'm thinking of applying for a discover with a 0% interest on balance transfers for 12 mos offer. I assume it won't be a problem to get the card since i have good credit and have never missed a payment on anything nor ever made a late payment. They send me these offers in the mail all the time.

so my question is if i close my citi account, will it negatively affect my credit to the point that I should keep it open? DH and i are planning to buy a used car sometime this coming year and we will have to finance at least part of it, so I would like my credit to look as good as possible.

thoughts?

There are two ways that it can hurt credit.

First, closing an account can reduce your debt to open credit ratio, which can make you look like a much higher credit risk. Opening another account with Discover, especially if it's at the same or higher limit than Citi will mollify that. Although, it you have a high limit with Citi, I really wouldn't count on getting one that equals it with Discover. Discover has always seemed to be a lot more risk-adverse than other issuers and thus issues correspondingly lower limits.

Second, closing a long-standing account with a good history will also affect your credit rating.

I'd open the Discover account, transfer the balance (if Discover gives you a high enough limit to do that), and then close the Citi account if you really want to after you get the loan for the car or in 12 months. But don't use the Citi account going forward . . . they may eventually close it, and I believe that affects your score less (if the card company chooses to close an account that's been at a $0 balance for a while).

[_ktg_]

I agree with cschick, but I have to add 1 cavet which was unknown to me until recently about CITIcard.

They do not always report your approved credit limit, so the balance may appear to some creditors as your credit limit and therefore using up 100% of your credit on that card.

This happened to DH & I couple of times as we have balances on our CITIcards and got screwed when trying to look at loans to get a better %age in an effort to consolidate.

[cschick]

Originally Posted by _ktg_

I agree with cschick, but I have to add 1 cavet which was unknown to me until recently about CITIcard.

They do not always report your approved credit limit, so the balance may appear to some creditors as your credit limit and therefore using up 100% of your credit on that card.

This happened to DH & I couple of times as we have balances on our CITIcards and got screwed when trying to look at loans to get a better %age in an effort to consolidate.

If that's true, the reasons to keep the Citi account open after the transfer really decrease.

Is this something the OP would be able to see on her free credit report? I have a vague memory of seeing a used/limit line on credit reports in the past, but I haven't taken a look at what's being offered on the free annual reports recently. (Somehow, in recent years, about the time it's been time to check on our free reports, we've been in situations to receive copies of our full credit report+score--last year related to a car loan, this year to a refi.)

[_ktg_]

A bank informed me of this practice, and I was shocked personally as I often saw my credit limit on the reporting program I had signed up for through ... citi.

I haven't checked my free annual reports lately, so I'm unsure how it would display from the 3 agencies.

[A&A]

although a lot of cc companies are closing cards you don't use anymore. So eventually they may close it anyway, even if you don't.

[cschick]

Originally Posted by A&A

although a lot of cc companies are closing cards you don't use anymore. So eventually they may close it anyway, even if you don't.

We've had a couple of accounts closed on us this year for that reason (those cards hadn't been used in years), and that's where my note that a card closed for these reasons doesn't necessarily appear to affect your credit score much. These closures didn't affect our score at all, even though one of them was even our most long-standing account (16 years).

But, in our case, all our credit card accounts are considered long-standing, since they've all been open 7+ years.

[Contrariety]

Oh I definitely wouldn't be using the new Discover OR the old Citi card. We don't even keep cards in our house. The transfer is mostly a stalling tactic. I wanted to pay off the card with my tax return this year but my car is OLD...20 yrs old and the heat doesn't work nor does the AC and I have a newborn that I need to keep warm! And just today I went outside to go to bank and it won't start, so it looks like a new car is in the cards probably sooner than I'd hoped for.

So I want to transfer the balance to the 0% card to work on paying it down without accruing interest until next year's tax return when I would (ideally) pay it off in full. So I guess I'll make the transfer but keep the citi open. I've had it for 6-7 years so it is a long standing credit. Maybe I'll use it to pay my car insurance and just pay it off every month to keep it open.

I'm not worried about getting a high limit on the Discover, just high enough to transfer the entire balance off the citi card, or at least close. Maybe I'll have to keep my citi card for a year so that I can transfer what's left of my discover back to them at a better rate! lol. Citi is desperate for my money! They send me balance transfer offers every other week, no joke!

[HollyBaby]

Originally Posted by _ktg_

They do not always report your approved credit limit, so the balance may appear to some creditors as your credit limit and therefore using up 100% of your credit on that card.

Absolutely correct. If your credit limit is below your monthly bills that can be paid on a credit card (rent, utilities, phone, etc.), pay all your bills on the card and use the cash to immediately pay it off with the next bill. This will show your highest balance to be closer to the actual limit. If you have a $2k card, and only ever had a balance of $200 on it, it looks like your limit is $200.

Which feeds into...

What hurts your score by closing an account is that your debt/limit ratio is suddenly a lot worse. If you open that second card and transfer the balance, then your known limits will be $3,400 (or however much the max you've carried on this card) plus the $3,400 balance your new card will have. Let's say that $3,400 is the highest balance on this card. Right now you are at 100%. Get the new card, transfer the balance, and the system will credit you as having $6,800 available, and with a total balance of $3,400, you're at 50%. Suddenly you look better, might even gain a few points. Now when you close the first card, you're back at 100%. The system doesn't determine if the sudden change is from closing a card. All it sees is you somehow went from using 50% of what was available to you to 100%. Points lost, interest rates will increase.

Credit is a game. Open the new card, transfer, pay it off, and either close both cards (you'll lose points for this still), or cut them up.