I am trying to simplify my life by having to deal with fewer credit cards and bank accounts. It has always been ingrained in my head that closing accounts could change your debt to credit utilization ratio, which in turn would impact your credit score.
Before my husband’s death, he had credit cards and bank accounts that were used only for business; I was joint owner on all accounts. I have already closed one bank account once taxes were paid for 2023; the other bank account is still opened, but when changed to my name, they canceled the credit card attached to the account. These were done months ago and no hit on my credit score.
The one I want to close next is a Gold Amex as I don’t want to pay the yearly fee which comes due next week. I have used all of the reward points, which is why I have kept it opened up until now. My hesitation is this card has a very high credit limit; I would like not to lose that in my debt to utilization ratio. What I don’t know is if that will really hurt me; my current credit score is excellent. The other thought is to ask Amex to add that credit limit to my Delta SkyMiles card, which also has a high limit, but I would guess they won’t do that.
I have 2 other free Amex cards that were opened before the kid’s weddings as they had 18 month free interest. It helped us spread the payments over time with no interest. I never use those cards, but to keep them active, I need to use them a couple of times a year, even it for a pack of gum! Would love to ditch these also, but again, they have high credit limits.
Lastly, there is the other business bank account that we have had forever. It gives me a free safety deposit box, but I have to keep a set amount in both checking and savings. I hate this bank, and closed my personal account with them a long time ago. I don’t like giving them my business, but can deal with leaving this account opened, if only for the safety deposit box that my mother uses.
As a clarification question: What sort of timeline do you have where you would need to lean on a higher credit score? Are you expecting to take out a mortgage / car loan, or otherwise have some situation where you would need that higher score? I’m a big fan of simplifying finances, and if things are relatively stable for you and you don’t foresee needing to rely on a credit score in the next few years, you might be totally fine just closing those accounts.
(Again: not an expert, and will defer to others with more experience / insights!)
Closing down credit cards will remove those credit limits from your report which could effect your utilization rate and therefore your overall score.
Part of the question for you is, how much will closing down the cards effect utilization?
Example to make clear what I’m saying:
Let’s say right now you have $100,000 of credit across all your cards. You want to close down $80,000 worth of credit lines, leaving you with $20,000 of total credit available
If you charge $1000/month across your cards - your utilization rate will go from 1% to 5% with this move. It shouldn’t effect your credit score very much at all.
But…in the same example - if you charge $5,000/month - your utilization rate jumps to 25%. That might cause a drop in your credit score due to a credit utilization over 10%.
You might want to think about what your credit card habits are, what you usually spend in a month and then decide how many cards can be canceled without taking you over 10% utilization across your cards.
As for the American Express card - you could convert your Gold card to a Blue card which doesn’t have an annual fee (unless you already have Blue card). If you do already have Blue, I’d call and ask them to increase your credit limit on the Blue card before you cancel the Gold card. You can always explain you’re trying to reduce the number of cards in your wallet if they ask why.
In terms of closing credit cards and the effect on credit utilization ratio and therefore credit score, it can depend on whether you are looking at an increase from (for example) 2% to 4% (probably trivial), or 20% to 40% (probably significantly negative).
I like what’s been said here (what are you buying so how would your utilization rate change?) . I also am kind of wondering aloud … as we get older what do we need a credit score for? Do you foresee buying a house? Financing a car? Certainly, we all want a good credit score as opposed to a poor one, but I’m wondering at 60/70/80 what real effect it has?
I have closed a few cards and bank accounts in recent years (to simplify and consolidate) and my credit rating did not take a hit (still over 800) despite the total credit amount going down.
I don’t have any plans to get anything on credit in the near future (maybe ever again), so if it had taken a hit I would not care.
Your whole financial life is changing right now, with the loss of your husband and his business. So many other factors that could change your credit rating. If you find your credit score dipping, then ask for credit limit increases on the ones you keep.
I say simplify stuff - close accounts, stop keeping cards that you only use to keep them active, etc. - you have enough to worry about without this.
One more note, consolidating accounts and cards, is a good idea to help prevent consumer fraud and identity theft. Fewer accounts to hack into, fewer credit card statements to review, etc.
Yeah, I’m just wondering how often that happens as we get older. I think dh and I have one more car to buy and MAYBE we’d do a condo in one of the kids’ cities, but day to day I don’t think our credit score is really affecting our lives.
It is not just credit utilization ratio. Age of accounts also matters. You can find credit score simulators online that will estimate how much score will change after closing accounts.
The one I want to close next is a Gold Amex as I don’t want to pay the yearly fee which comes due next week.
If you call them and state your concerns, I would not be surprised if they eliminated the fee. This is fairly common.
You could ask the card issuer, AmEx, to increase your limit to the AmEx card your are keeping if you don’t want to ask them to waive the fee to keep your gold card. Explain the situation and see what the offer.
I’m wondering if you need a larger credit limit than you might think if you were to go into assisted living or similar. It’s not uncommon for people to need care quickly- before they are able to sell their house-- and so having access to borrowing might be pretty handy if you have an accident or your health declines.
With one of my parents, the choices ended up being pretty stark- an awful place which would bill month-to-month, or a better place (care, facilities, location, food) which required a payment up-front.
Just make sure you aren’t shutting down your financial flexibility in an effort to simplify.
If any of those credit cards are actually “business” credit cards they should not appear on your credit report. Have you checked your credit report to see if they are actually there?
If they are not, you can close them and it will not effect your credit score.
DH closed a business credit card recently and it didn’t didn’t make a dent in the his credit score.
That way there’s no charges that I, my husband or anyone can make while the card is frozen.
I had a reoccurring charge on a card I wasn’t using and did not see the email statement, I caught it pretty quickly but don’t want to check accounts that I’m not using.
That way, they stay open, can be used in an extreme situation and if they get closed for lack of use, I’m ok with that also.
I had a BP oil card that I had forever, the kids are authorized users but since there are no BP oils in my area, it was closed for lack of use. Didn’t affect my credit score so I guess I’m not that worried.
We also don’t have a ton of credit cards either and our credit score is fine.