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

01/16/2008
Should I close my store credit card?
If you open a store credit card in order to take advantage of a discount, what’s the best policy after that? Should you keep that card, or should you close it after you’ve used that discount?
Gerri Detweiler:
expert info »
When you open the account, it will affect your score regardless of whether you keep it open or close it. The key is to decide whether it's really a good idea to open it in the first place.
Jody Rorick, CPA:
expert info »
You should close the account after paying it off. In the future, you shouldn't open any store credit cards [credit card accounts], even though they offer a discount. The discount isn't worth ruining your credit score by showing a pattern of opening and closing accounts.
Bettye J. Banks:
expert info »
Always look at the long term effect of any credit transaction. That application for credit could negatively affect you because it costs you points on your credit score. Applications for new credit can take up to 10 points off your score. If you have good credit this might not affect you very much, perhaps 1 or 2 points, but if you have problems it just makes it worse. By all means, if you plan to use the card hang on to it, but always keep it in good order and pay on time. The most significant factor in your credit score is your pay history ([which accounts for about 35% of your credit score). Before you close an account, make sure it doesn't affect your debt utilization ratio. That ratio is a composite of all your accounts. Closing all accounts with a zero balance and having only open accounts with existing balances could cost you big time on your score.
Editor’s Note: The debt utilization ratio is the amount of available credit you’ve used, according to the article “Coping With Credit-Card Rate Increases,” by Kimberly Lankford, at www.kiplinger.com/columns/ask/archive/2007/q1111.htm. In another article—“Don’t Close Credit-Card Accounts”--at www.kiplinger.com/column/ask/archive/2007/q1007.htm, Ms. Lankford states that “A key factor in your credit score is the amount of available credit that you’ve used, called your ‘utilization ratio.’ Generally the lower the ratio, the better.”
Rebecca Schreiber CFP®:
expert info »
If you don't use the card any more, cut up the card but keep the account open. Just make sure the credit card company has your current address and that the account balance is zero. The history of the card helps communicate that you have been a healthy borrower who has shown restraint and did not abuse this line of credit. Closing the account will likely lower your score as you are cutting off some of your available credit.
If you really want to cancel the card, first get your credit limit raised on another card equal to the line of credit on the store card. This way if you do cancel the store card your overall credit availability remains the same. However you would still miss out on the history of the account. Best wishes.
 

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