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Effect on credit rating if the bank closes your credit card?
Old 08-05-2013, 06:52 PM   #1
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Effect on credit rating if the bank closes your credit card?

We have a Sears card but don't use it at Sears, since our other credit cards give us cash back and Sears card doesn't. Just got a letter from CITI Sears Cardmember Services:

"After a recent review of your account, we noticed that your credit card has been inactive for over 3 years. In order to keep your account from being closed due to inactivity, your Sears card must be used to make a purchase or other transaction by September 30, 2013."

Should we give a darn? Any risk to our credit rating if the bank closes the card?

Amethyst
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Old 08-05-2013, 07:41 PM   #2
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According to Credit Karma's data..

The total number of cards has a low effect, age of credit history (with 8+ years avg. age being the max score) has a medium effect and the total credit line utilization has a high effect.

Unless Sears represents a big % of your aggregate credit line and /or it's a very old account compared to your others, I doubt you'll see any effect.

If you set up a free Credit Karma account, you can simulate such changes on a trial basis. FWIW.

Sears was my first or second credit card way back when. I let it lapse years ago.
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Old 08-05-2013, 07:54 PM   #3
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I would not close any credit card. You should try to use all your cards at least quarterly. The best things you can do with a credit card is to use it, don't abuse it, pay it on time and try to get the credit limit increased at least once a year. The ratio of available credit to credit used at any given time is ultra important.

I love it when they tell me my credit score would be higher if I had a mortgage to show I was able to make payments on time. Those credit bureaus slay me. I am always trying to get my score above 900 but to no avail. I would rather talk to the IRS than to talk to a credit bureau. I've talked till I'm blue in the face about the emphasis they put on mortgage payments while giving you no credit for paying it off. "It's their policy". You are at their mercy.
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Old 08-05-2013, 08:04 PM   #4
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Was wondering about this the other day. Paid off the mortgage a few years ago, and have no other debt. We pay for most of our living expenses with a Discover card to get the 1% rebate (Hey it adds up!) but that is the extent of our credit activity.

I dont want to loose my $100K Home Equitly Line of Credit so I have been debating using it to pay for something even though I dont need it. (Want to keep it for future emergencies after I retire next year). Afraid the bank will downgrade my credit score for inactivity.

Hey - maybe I should buy a boat and tell DW that I am excercising our credit to keep a good rating....
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Old 08-06-2013, 06:15 AM   #5
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To be fair to the credit agencies, when you pay off a mortgage, that record of payments stays on your report for some period of time (7 years?). This is probably fair but they make it look like you are being dinged for not having a mortgage. Maybe the mortgage record should go on for some longer period of time.

Wonder if anyone knows more about the scenario of how a paid off mortgage affects your credit rating/score.

Then again, I get confused by information from the credit bureaus that the FICO scores they create are not what insurance/mortgage/loan companies use. I'm told these companies have their own credit scoring models. What to believe?
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Old 08-06-2013, 06:19 AM   #6
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Unless the card is a large portion of your unused credit then it won't make much difference if you close it as it won't change your credit utilisation much.
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Old 08-06-2013, 06:24 AM   #7
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I would go ahead and charge something while Sears still exists.
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Old 08-06-2013, 06:30 AM   #8
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I know many here are still striving for FIRE, but one of the great satisfactions of achieving financial independence is that you can pretty much ignore "credit ratings".

I do have two credit cards (strictly for convenience), but beyond that, absolutely no loans or other credit. FICO score? Who cares...
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Old 08-06-2013, 06:33 AM   #9
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I would think that the simplicity of having one less credit card would trump the small, temporary ding to my credit score.

I actually don't care much about my credit score as I don't anticipate borrowing or adding to my credit capacity anytime soon and I pay off my bills every month so any effect of my credit score on interest rates I pay is a moot issue.
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Old 08-06-2013, 06:51 AM   #10
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Quote:
Originally Posted by mpeirce View Post
I know many here are still striving for FIRE, but one of the great satisfactions of achieving financial independence is that you can pretty much ignore "credit ratings".

I do have two credit cards (strictly for convenience), but beyond that, absolutely no loans or other credit. FICO score? Who cares...
I agree. For me the only real reason for having a good FICO score was to able to refinance my mortgage. But without an income (pension, SS, whatever) it's pretty much impossible to get a mortgage these days, so why bother. We still have credit cards, I use Discover for everything and get the points, but it's Efor our convenience and I don't pay attention to the score anymore.

Edit: I just checked it, and even without paying any attention we're right at 800 (Fair Isaacs), so I suspect being a person who competently uses credit cards and who doesn't have non-mortgage debt will result in a good score anyway.
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Old 08-06-2013, 06:56 AM   #11
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Originally Posted by pb4uski View Post
I would think that the simplicity of having one less credit card would trump the small, temporary ding to my credit score.

I actually don't care much about my credit score as I don't anticipate borrowing or adding to my credit capacity anytime soon and I pay off my bills every month so any effect of my credit score on interest rates I pay is a moot issue.
Some other folks in your life do care like home and auto insurance companies. Every time you ask either of these folks for a quote, they want to check your credit rating. Just a couple of the things I care about.
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Old 08-06-2013, 07:00 AM   #12
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Put me in the camp as one who doesn't care much about credit rating.

As far as the mortgage goes, I look at it more as people who have and pay mortgages on time as getting a bump up in their rating, rather than those not having a mortgage getting dinged. Besides, a credit report doesn't look at assets (as far as I know, anyway), so it's tough for them to tell me with a paid off mortgage apart from my son who doesn't have a home.
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Old 08-06-2013, 07:13 AM   #13
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These are the "folks" we care about. Our insurance rates are ridiculous as it is (and shopping around hasn't uncovered enough improvement to make it worth changing companies). So anything which could cause the insurance rates to rise is cause for concern.

Amethyst

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Some other folks in your life do care like home and auto insurance companies.
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Old 08-06-2013, 07:34 AM   #14
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These are the "folks" we care about. Our insurance rates are ridiculous as it is (and shopping around hasn't uncovered enough improvement to make it worth changing companies). So anything which could cause the insurance rates to rise is cause for concern.

Amethyst
While I concede that the insurance carriers use credit score in underwriting, do you really think that if my credit score is high to begin with (775-800) and I kill my Sears card that I never use and has a $12k credit limit that my home and auto insurance premiums will be adversely affected? I wouldn't think so.
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Old 08-06-2013, 07:37 AM   #15
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About five years ago my longest held credit card dropped me for non-use. It cut my credit card history in half. When I built a new house two years ago and was setting up the mortgage, the mortgage lender brought this up. Additionally, I owned my previous home and had no mortgage. These two things combined, made my credit history less than they liked to see. My FICO was 815 and my wifes was 820 at the time, and they were still giving me hassle. I have never had so much trouble arranging financing. So they do look at more than just the credit rating. (The reason I bothered with a mortgage was that rates were too good to pass up by paying cash. If the yield on my municipal bond falls about 1% from where it is now, I'll just go ahead and pay off the house. Right now I am being paid about $2500 a year not to pay the mortgage off. Fund earnings vs mortgage cost. When I first got the mortgage it was twice that.)

Like any one that retires early, all of our credit ratings will probably drop as we switch to a mostly cash up front life style, but it is unclear how much. It's so strange that doing things "right" has a negative impact. I suspect we mostly won't care since we won't use credit for many things, but as some posters have mentioned, other things like insurance do look at this.
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Old 08-06-2013, 07:37 AM   #16
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These are the "folks" we care about. Our insurance rates are ridiculous as it is (and shopping around hasn't uncovered enough improvement to make it worth changing companies). So anything which could cause the insurance rates to rise is cause for concern.

Amethyst
I really doubt it would affect you that much, but if you let your card lapse you will always be left with a niggling doubt, so since you shop at Sears anyway I would go ahead and use your card to keep it alive.
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Old 08-06-2013, 08:02 AM   #17
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Originally Posted by Amethyst View Post
We have a Sears card but don't use it at Sears, since our other credit cards give us cash back and Sears card doesn't. Just got a letter from CITI Sears Cardmember Services:

"After a recent review of your account, we noticed that your credit card has been inactive for over 3 years. In order to keep your account from being closed due to inactivity, your Sears card must be used to make a purchase or other transaction by September 30, 2013."

Should we give a darn? Any risk to our credit rating if the bank closes the card?

Amethyst
I received two of these form letters back in 2009 for credit cards I had not used in at least 10 years. I did not care one bit. In fact, I was glad because I could now get rid of all the paperwork I had been getting from those banks over the years (i.e. privacy policies, change in card agreement terms, etc.). One of them (Discover) keeps sending me letters trying to woo me back. Yeah right.

None of this stopped me from getting a new CC (my first cash-back one) from my local bank which has my checking account. My credit score was nearly 800, I was told.
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Old 08-06-2013, 05:48 PM   #18
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Another option which I understand gets interpreted different by the credit gods is for YOU to formally request your account. It is my understanding that your credit report will display "closed at request of owner" instead of "closed by issuer".
You still get rid of the card but without the red mark of shame for bank closure.
I would do via snail mail, return requested and not online.
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Old 08-06-2013, 07:03 PM   #19
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I would not give Sears my business just to keep them from closing my account unless I just happened to need something there. I don't understand why people bother with store branded cards anyway. Asides from getting the occasional 10% Macy's discount, I rarely see a store branded card offering any kind of points or rebates like the Visa/MC/AMEX/Discover cards do.

Unless you are maxed out on all your traditional credit cards (which I would imagine few people on this forum are), it would seem like carrying store branded cards is just a waste of time and effort.
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Old 08-07-2013, 02:07 AM   #20
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About five years ago my longest held credit card dropped me for non-use. It cut my credit card history in half.

That would be unusual. My understanding is that accounts that are in good standing with no negative history generally stay on your credit history for 10 years. (Negative information on an account stays on for 7 years).

So closing an account doesn't take it off your report and doesn't shorten your credit history usually until many years have passed.

That said, many people don't understand that closing a credit card can have a negative effect if it increases your credit utilization.

Imagine someone who has a lot of accounts with total credit available of $100,000 and is spending $8,000 a month which is less than 10% of their credit (this doesn't mean carrying a balance. If you have $10,000 credit available and charge $5000 which is billed to you that is 50% utilization for that month even if you then pay it in full). Now, assume that person continues to charge the same amount each month (even assuming they pay in full each month), but closes a bunch of accounts so that the total credit available is now $50,000. Now, that $8,000 spending is 16% utilization which will likely have a negative impact on the credit score.

On the other hand if the person's utilization was didn't significantly change with closing the account then the account closure would have no negative effect. It is the change in utilization which causes the problem, not the closing of the account per se.
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