Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

07/21/2004
Canceling a credit card.
We obtained a home equity loan in the amount of 9200.00. Several years ago, I got three secured credit cards in order to get my credit rating in good standing. We used some of this 9200.00 to pay off one of the credit cards. Another has already been paid off and cancelled. I also requested this credit card be cancelled also. (I have one more to pay off.) We still have more than half of the home equity loan left but would like to use it to improve our house. My question is this: Does a cancelled credit card show up as a negative on your credit report?
Bettye J. Banks:
expert info »
1) If the CONSUMER closed the credit card account it does not show as a negative; if the creditor cancelled the account it does.

(2) The cancelled account changed the total debt-to-income (DI) ratio. If the total (DI) ratio (for all debts) is below fifty percent, that's good.

If the new DI ratio is above 50%, that's not so good. Before deciding to close any account make sure the total DI changes for the better if you do.

An open account with a low or zero balance is not necessarily a bad thing.


Patricia Leigh:
expert info »
If you make a practice of opening credit cards and then closing them soon after you open them, it is considered a negative by some creditors. They prefer people who use their credit cards and make timely payments over a long period. The lesson is, don't open credit cards that you don't really want. It sounds as if you have held these cards for several years. Whenever you close an account that is being reported to the credit bureaus, you should send a certified letter to the card issuer asking them to close the account and to report to the credit bureaus that the account was paid off and closed with a zero balance at the customer's request. Ask the issuer to sent you a written response within 30 days confirming that they have done as you requested.

I want to make one point. As far as I know, secured credit cards are not considered an indication of your credibility. Since you have to put the money into the account up front, they are not considered credit and are often not even reported to the credit bureaus. Do you know whether your secured credit cards are reflected on your credit report? If so, simply do as I suggested above.
Dorecia Baggett-Waisome:
expert info »
No. A paid and cancelled credit card does not show up negatively on your credit report. However, a cancelled account with an outstanding balance can have a negative impact on your credit score, but it sounds like this is not the case in your situation. When working to improve your credit score (and actually as a consumer in general) it is very important to remember to review your scored credit report at least once a year. Always try to maintain a minimum credit score of 620.
Bret Duvall:
expert info »
For what I know, if you initiate the cancellation, the credit report will display 'canceled by borrower' which will not effect your history/score negatively.
Charlotte Anne Bond:
expert info »
No, if you cancel the credit card yourself it will show up on your credit report as cancelled by customer. This will actually improve your credit by reducing the amount you have readily available to you.
Brett J. Willis:
expert info »
Quite the opposite. If you payoff a credit card and close it that will show as a positive on your credit report. If it was cancelled or closed by the credit card company for other reasons (late payments, collection, charge off) that would be a negative. By you paying it off and closing it that will improve your credit rating. I hope that answers your question.
Gerri Detweiler:
expert info »
I am assuming you cancelled the credit cards, not the card issuer. If so, they should be listed as just "closed" or "closed by consumer" on your credit reports. That is not negative per se, but it can cause those reference to eventually drop off your credit report, which may not be good if you have few positive accounts on your report.Given that you are trying to rebuild your credit, I would not recommend you close or cancel accounts.

To build better credit, it's good to have at least two or three current accounts that you use from time to time and of course pay on time. (You don't have to carry debt to have good credit but you should keep the accounts active.) If your credit has improved to the point where you can get a major unsecured credit card now, I'd recommend you do so. Leave the other account that you haven't closed open. Use these cards for things you'd buy anyway, pay them in full and you should be building a better score.

By the way, Fair Isaac, creator of the popular FICO credit score recommends that you never close old accounts. They say that doing so can only possibly hurt your credit rating and can never help it!
Gail V. Marquet:
expert info »
Congratulations on paying off your credit card debt. A cancelled card does not reflect negatively on your credit report. It can have the opposite effect as not reflecting an open account which could be maxed out.
Jason Furze:
expert info »
Though seemingly a straight forward question, the true answer is elusive.
I'd have to evaluate your entire credit situation to provide you with some decent feedback, but if you want a good education, and the ability to determine the direction of your credit on your own, begin here.

CBS News Understanding Your Credit Score - CBS News

The Federal Trade Commission web site
http://www.ftc.gov/bcp/conline/pubs/credit/bbcr.htm

The Freddie Mac website
http://www.freddiemac.com/homebuyers/school/build_credit.html .
Stacy Swanson:
expert info »
I would suggest that you keep at least one credit card open and maintain a good payment history. By keeping one credit card open, you will show an established credit history. It is also wise to have a credit card available in case of an emergency or for making reservation or renting a car, if it should become necessary. This does not mean that you have to actively use the credit card. Maybe try, once the car is paid off, using it for a purchase a month that you will be able to pay off at the
end of the billing cycle.

It is recommended that you check your credit report once a year. For those credit cards that you have already cancelled, make sure that it is noted on the credit report that "Customer cancelled card"

An excellent website that explains credit scores and how certain activity affect your score is www.myfico.com. Go to "Credit Education". It is a trustworthy and easy to use site. There maybe other things you can do to raise your score if you are considering taking out a loan in the
future--car loan, refinancing, etc..

If you would like any further information, please feel free to contact
me.