[PSUSMU]

Scenario:
Amex Green (charge card) holder since 2011 - $95/yr fee
Signed up for Amex Everyday Preferred (credit card) for better rewards bonus - $95/yr fee

I don't want the Green card anymore, because the rewards aren't as good and don't want to pay 2x fee.

How will cancelling the Green card affect my credit score? Will cancelling the card effectively lower my average account history, since Green will be frozen at 3 years, and now the new one is 0+?

What's the right move to do?

[upstatedoc]

It's been my understanding that the more credit cards you have the lower your credit score will be because of the potential debt is greater. I don't see how canceling a cc will lower your score?

[954Stealth]

It is hard to say how it will affect your credit score without knowing what else is on your report.
That said, an open card with a zero balance is better than a closed account.
Utilization accounts for something like 30% of your credit score. They look at each credit account individually and then all the credit accounts together as part of the credit mix algorithm. Keeping your balance(s) at 10% or less of your credit limit is ideal in the eyes of FICO. If you close an account with good history and a good utilization it will no longer factor in to that 30% portion and could potentially damage your FICO score. Again, this is all without knowing the rest of your credit report. These things are super complicated and no one truly knows how much each action will affect a score being that the algorithm is highly confidential and proprietary to Fair Issac.
It also depends on your credit history with the green card. Is it in good standing or do you have balance, high utililzation, have you been late 30 days or more?
If that is the account with the longest credit history (3 years) then yes that will negatively affect you as well.

Credit does not equal debt until you start running up the balances and then your debt to income ratio will be affect and this will impact your score too.

[Nkc]

I thought you could just call the CC company and waive the annual fees.

[fecurtis]

Originally Posted by upstatedoc

It's been my understanding that the more credit cards you have the lower your credit score will be because of the potential debt is greater. I don't see how canceling a cc will lower your score?

Wrong. Canceling your CC WILL lower your credit score.

Your credit score is a function of many things but the some of the biggest factors are the debt utilization ratio, timeliness of payments, and age of accounts.

Since you opened the CC in 2011, at least it's not an old credit card so that's good.

But the other thing is the debt utilization ratio and how much total debt you're allowed to have. They basically take the current balance on all your credit cards and divide it by the credit limit of all of your cards. Anything under 30% is typically good, under 10% is ideal. That's where you stand to get hurt. If the card has a high limit and you cancel it, it'll lower your total available credit.

Assuming all of your other credit card balances are $0, it will still hurt you but not as badly. If you cancel that card and suddenly your debt utilization ratio jumps, then it could hurt you pretty badly. This hurts you even more if the credit card is really old since your average age of active accounts drops, which will in turn drop your score.

I'd suggest calling them to see if you could cancel that card but get another one with no annual fee just to keep your total available credit figure as high as possible or try to have them waive the fees.

[jlstyle]

It all depends.
But closing out on charge card account will have same affect as having an open account that hasn't been used past 90 days.
Any account that hasn't been used past 90 days are deemed inactive and doesn't generate any positive or negative points to your credit. But it will come out as an account with good standing if you lack number of accounts, you might want to keep it.

I guess you are pampering your credit for mortgage, and to build a good credit, you want 4 "active" credit accounts that are in good standing (under 40% revolving balance) and lengthy in history.

One example can be:
1. Auto loan
2. Credit card #1: Longer history the better
3. Credit card #2: Longer history the better
4. Any other credit line you might have

All open and closure appear on your credit reports and as long as you don't close out an account after balance transfer or after negative activity, you should be fine.

[zx10guy]

Originally Posted by 954Stealth

It is hard to say how it will affect your credit score without knowing what else is on your report.
That said, an open card with a zero balance is better than a closed account.
Utilization accounts for something like 30% of your credit score. They look at each credit account individually and then all the credit accounts together as part of the credit mix algorithm. Keeping your balance(s) at 10% or less of your credit limit is ideal in the eyes of FICO. If you close an account with good history and a good utilization it will no longer factor in to that 30% portion and could potentially damage your FICO score. Again, this is all without knowing the rest of your credit report. These things are super complicated and no one truly knows how much each action will affect a score being that the algorithm is highly confidential and proprietary to Fair Issac.
It also depends on your credit history with the green card. Is it in good standing or do you have balance, high utililzation, have you been late 30 days or more?
If that is the account with the longest credit history (3 years) then yes that will negatively affect you as well.

Credit does not equal debt until you start running up the balances and then your debt to income ratio will be affect and this will impact your score too.

Originally Posted by fecurtis

Wrong. Canceling your CC WILL lower your credit score.

Your credit score is a function of many things but the some of the biggest factors are the debt utilization ratio, timeliness of payments, and age of accounts.

Since you opened the CC in 2011, at least it's not an old credit card so that's good.

But the other thing is the debt utilization ratio and how much total debt you're allowed to have. They basically take the current balance on all your credit cards and divide it by the credit limit of all of your cards. Anything under 30% is typically good, under 10% is ideal. That's where you stand to get hurt. If the card has a high limit and you cancel it, it'll lower your total available credit.

Assuming all of your other credit card balances are $0, it will still hurt you but not as badly. If you cancel that card and suddenly your debt utilization ratio jumps, then it could hurt you pretty badly. This hurts you even more if the credit card is really old since your average age of active accounts drops, which will in turn drop your score.

I'd suggest calling them to see if you could cancel that card but get another one with no annual fee just to keep your total available credit figure as high as possible or try to have them waive the fees.

All of the above.

As an aside, you might want to look at other AMEX cards. I have 2 AMEX cards and I pay zero annual fees and get reward point which can be redeemed for stuff or cash. At least one of the cards also has all the protection that comes with AMEX for product purchases such as extending warranties, and lost/stolen/accidental damage replacement. Both perks I've used before without hassle.

[PSUSMU]

My credit score is in the 740-760 range. I have 0 negative items on my credit report. I have a mortgage, auto loan, and other CCs all in good standing. Longest account history is probably 6 years. Only item negatively impacting my score is lack of accounts with 5+ years history. My credit utilization is always <30%.

I have a substantial amount of Amex reward points - so the paid cards are worth the added multipliers to me.

[zx10guy]

With all that, I wouldn't sweat closing an account. The only time is if you didn't have other positive credit producing items on your report and you're going after a loan.

If you're not going after another loan, I wouldn't even care how it impacts your score; even if you're going after a security clearance.

[2011CrazE89]

I have a Chase Slate card with a $16K credit line. Didn't use it in 5 years so they reduced my credit line to $5K.

[954Stealth]

Originally Posted by zx10guy

With all that, I wouldn't sweat closing an account. The only time is if you didn't have other positive credit producing items on your report and you're going after a loan.

If you're not going after another loan, I wouldn't even care how it impacts your score; even if you're going after a security clearance.

I agree, seems like you'll be fine closing the account

[fecurtis]

Originally Posted by PSUSMU

My credit score is in the 740-760 range. I have 0 negative items on my credit report. I have a mortgage, auto loan, and other CCs all in good standing. Longest account history is probably 6 years. Only item negatively impacting my score is lack of accounts with 5+ years history. My credit utilization is always <30%.

I have a substantial amount of Amex reward points - so the paid cards are worth the added multipliers to me.

Then just close the account, you may take a small hit but shouldn't be anything that makes you say "WTF" and certainly not something you can't bounce back from in a few months.

[NemesisX]

Originally Posted by upstatedoc

It's been my understanding that the more credit cards you have the lower your credit score will be because of the potential debt is greater. I don't see how canceling a cc will lower your score?

There's initially a drop in your credit score by opening a new line of credit. But, over time, assuming you spend the same amount that you do before you opened your new credit card, your credit score will increase even greater than it was prior to opening your new line of credit because your credit utilization ratio will be lower (edit: assuming your credit utilization wasn't already < 10% to begin with).

E.G. Your total credit limit is $100. You charge $20/month (and pay off the balance in full at the end of each month). Your credit score is 600, and it's increasing by 1/month assuming you maintain a credit utilization of 20%.

You open a new credit card that has a credit limit of $20. Your credit score is now 590 because you just opened a new line of credit. You charge $20/month. Your credit score increases by 1.3/month assuming you maintain a credit utilization of (20/120) = 16.7%.

That's the general idea. The math isn't exactly correct but the general idea is correct. Credit utilization matters more (35%) than opening new lines of credit (10%) so there's going to be some break even point to where you'll receive a net credit score boost down the road.

You never, ever want to close a credit card. Simply don't use it if you must, although if you really want to maximize your credit score you want to keep it "active" by using it every now and then. Charge $1 on it and pay off the $1 in full at the end of the month (after the $1 balance has been reported to the credit agencies, of course). The very act of closing a card hurts your score, and then you're further dinged indirectly by inevitably assuming a lower credit utilization ratio assuming you charge the same amount.

[NemesisX]

Incidentally this is precisely why I never use credit cards with annual fees. I don't want to have to deal with this conundrum of closing the card if I don't use it.

I guess the "simply don't use it" advice doesn't apply here since the OP is on the hook for a $95/year fee.

I'd say close it if you don't intend on financing anything "big" (whatever that means to you) in the next 3-5 years or so. Realistically, once you're above 760 or 780 or so, you'll get the best rates available anyways.

[NemesisX]

Originally Posted by 2011CrazE89

I have a Chase Slate card with a $16K credit line. Didn't use it in 5 years so they reduced my credit line to $5K.

Yep this is precisely why you want to keep all of your cards "active" even if it means charging something as simple as a $1 soda on the card each month. It seems absolutely silly that one would have to do this or that something so trivial would make a difference but that's just how it works.

[zx10guy]

Closing a credit card is not a big deal if you already have a decent FICO score with other well established lines of credit. Your FICO score only comes up when you're seeking to get a loan or if you're applying for a job which looks at your FICO score. Any other time, your FICO score doesn't even come into your life.

I rather close down lines of credit I don't use because chances are you're not even monitoring the account. It's more of a mess if your account info gets compromised by some hacker than to deal with a small blip in your FICO score. And your chances of having your personal information compromised grows in relation to how many accounts you have out there.

[PSUSMU]

The 2 cards under question are both with American Express. My new card says Member since 2011, because that's when I opened the first.

[John 070]

Originally Posted by upstatedoc

It's been my understanding that the more credit cards you have the lower your credit score will be because of the potential debt is greater. I don't see how canceling a cc will lower your score?

My understanding is quite the opposite. I used to always cancel unused cards. Now my available credit has to be almost 200k. I routinely charge about $3k/mo., and pay it off and carry no balance. My score was pretty good when I refinanced.

The idea is that say you have a $30k credit card, that has a $0 balance, and has been in good standing for 84 mos. When you cancel it, you lose 84 mos. of positive feedback, and your score goes down.

Nobody can verify 100% that the above is true, it is what I've heard.

[PSUSMU]

Originally Posted by John 070

My understanding is quite the opposite. I used to always cancel unused cards. Now my available credit has to be almost 200k. I routinely charge about $3k/mo., and pay it off and carry no balance. My score was pretty good when I refinanced.

The idea is that say you have a $30k credit card, that has a $0 balance, and has been in good standing for 84 mos. When you cancel it, you lose 84 mos. of positive feedback, and your score goes down.

Nobody can verify 100% that the above is true, it is what I've heard.

I don't believe you "lose" that history. It's just frozen at 84 months. Your credit history is what shows up on your credit report.
If you actually lost the history, wouldn't delinquent debtors just cancel and erase their history?

[JasonCSU]

Originally Posted by PSUSMU

I don't believe you "lose" that history. It's just frozen at 84 months. Your credit history is what shows up on your credit report.
If you actually lost the history, wouldn't delinquent debtors just cancel and erase their history?

Correct, the history isn't lost. Your available credit decreases which in turn could change the percent of your credit currently in use.

[NormE91]

Originally Posted by NemesisX

Incidentally this is precisely why I never use credit cards with annual fees. I don't want to have to deal with this conundrum of closing the card if I don't use it.

I guess the "simply don't use it" advice doesn't apply here since the OP is on the hook for a $95/year fee.

I'd say close it if you don't intend on financing anything "big" (whatever that means to you) in the next 3-5 years or so. Realistically, once you're above 760 or 780 or so, you'll get the best rates available anyways.

Amex is one case where I feel the annual fee is actually worth it. I put basically my whole life on it, and pay it off each month (which you have to of course). I use it like many others use debit cards. I get back the annual fee 10-15 times over in rewards points which I generally use for airline tickets. No black out dates or anything. They also offer superior purchase protection and many other benefits.

[koreez88]

The score drops, but by a small amount. Don't sweat it.
As long as it's not the oldest card you have, go ahead and close it.

I just recently closed a Chase Southwest card and opened 3 new ones.