I have a card that I really hate. It's got a bad interest rate and only a $3,000 limit, and I don't like how bill-pay works on their website. There are many annoying technical problems, and I'm constantly calling my bank on the phone to pay my bill. I have spent so much time on the phone with them these past six years, and they are not helpful. So I no longer want to have this card once I've finished paying it down ($700 left to go!). But I heard that closing a card hurts my credit. So what am I supposed to do? I have no other cards, but have a car loan and student loans, and I've always paid those loans and my card on time. So my credit is pretty good. It was 700 six months ago when I checked. Is there a way I can get rid of this card without the credit damage? – Jill
Never canceling a card is one of the oft-cited cardinal rules of the credit advice realm. There's a good reason for that — canceling a card can hurt your credit scores. So closing a card is a dangerous move if you're applying for new credit any time soon.
But I hear you — you hate your card, and you have some good reasons. Fortunately, there's a way to minimize the damage: Get a new credit card. Assuming you're not applying for a loan in the near future, you'll have time to recover from any temporary credit score dips.
Of course, you'll have to ease into the new card before canceling your old one. Once you finish paying off the $700 balance, put the card in the drawer, and wish it good riddance — but don't cancel quite yet. Apply for a new card with terms you like better. Once you've been accepted, use the card perfectly for several months. Pay all bills on time, and keep your balance low. Keep up with your loans, too. Then pull the plug on your old card. The good history associated with your old card won't disappear overnight. Assuming you never paid late, the positive history associated with that card will stay on your credit reports for 10 years.
As for getting a new credit card, with a score of 700 (I assume you're talking about FICO scores), you most likely qualify for cards for people with good credit.
Because it's been six months since you checked your score, however, it may be worthwhile to see if it has dipped — or if it's inched up into the 720-to-740 range, which would qualify you for credit cards for people with excellent credit. You say you've been paying your balance down, so your lower credit utilization may have lifted your score.
If you don't want to pay for your FICO scores (which cost $19.95 each at MyFico.com),
try this free FICO score estimator. Human error can make these estimators less than accurate (if you forgot about a late payment from a few months ago, for example, and neglect to fess up when you use the estimator). Plus, you'll wind up with a range of scores instead of your specific score. But, as a tool for seeing which cards you might qualify for, I think the estimator is just fine.
Once you've found a new card, here's something to consider: You've had your old card for several years. If it's your oldest card, it may be smart to stick with it because the length of your credit history does factor into credit scores. Once that card eventually falls off your report, your length of credit history will shrink by six years. So, a better long-term plan for your credit is to keep the account open and use the card once in a while. Charge something small every few months to keep it active, and then pay the balance off in full when the bill comes.
In addition to keeping your long credit history intact, this will help your credit in the short term. First, you will continue to get full credit for the positive payment history associated with the card. Second the $3,000 credit limit will add to your overall credit limit once you take out a new card. There's a component of credit scoring called credit utilization — the amount of your credit limit that you're using. The lower your utilization, the better. An easy way to keep your utilization at a healthy level (experts recommend below 30 percent — ideally much lower) is to have a high credit limit.
Good luck, Jill. I hope you find a card that doesn't fry your nerves.
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