January 19,2009
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Trimming your Credit Card Collection, Pt.2 –
– When it's good to close.Will you be needing any kind of credit any time soon? Are you looking at any student loans, car loans or home loans soon? Remember that your credit depth will be heavily weighed when doing so. Things like credit history and available credit will be factored in when determining the terms of your new loan. Also consider, if you already have an outstanding balance on other accounts, closing a credit card account with a large available balance can increase your debt ratio and hurt your credit score. If you decide to go this route, be sure and wait a few months before applying for more credit. Further, you should note that it's risky to close too many credit card accounts in a short time. Too much activity like this could flag you as being unstable with credit. Space your closings a few months apart, if closing more than two credit card accounts.
If you have several cards but never use ‘em: If this is the case and your balances are close to (or at zero), closing a few accounts could actually be good for you. One thing the credit card industry looks at is your utilization ratio. Credit card lenders like to see you using between 20% and 33% of what you could use. Therefore, if you have a large amount of available credit you would have to carry that much more debt to satisfy that ratio.
Say if you carry ten credit card accounts, each offering $10,000 of available credit, you would have to carry a debt-load of $20,000 just to maintain this ratio. Better to maintain just three credit cards with lower credit limits for your FICO Score and credit trustworthiness Lenders are not offended at all when you request they lower your credit limits. Just remember to never close an account that has an outstanding balance still on it. This would be very bad.