Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring and debt related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.
Should I cancel a card from a store I no longer shop in?
Closing a credit card, especially one in good standing that you’ve had a long time, can hurt your score by reducing your overall credit utilization and shortening your length of credit history.
Dear Keeping Score,
I have two credit cards now: one Visa card that I’ve had for about 14 years with a $5,000 credit limit and one of those store credit cards that can only be used at that store, which I’ve had for maybe 10 years with a $6,000 limit.
Neither card carries a balance; I always pay them off in full at the end of each month. I think I’ve probably had late fees on the Visa half a dozen times over the life of the card, possibly more – 14 years is a long time.
Anyway, I want to apply for one of those shiny Capital One rewards cards with no annual fee. Will the amount of available credit I already have (especially on that stupid store card) make it harder in any way to get the Capital One card?
Should I cancel the store card? I almost never use it anymore because I no longer go to that store. I need to move to a new apartment sometime in the next year, so I don’t want anything to damage my credit score too badly. What do you think? -Brigitta
Don’t close that card! You have had this account for a long time, you don’t carry a balance, you have a good amount of available credit and it sounds like you do use it occasionally in a responsible way. These are all factors that are good for your credit score.
Here’s why I think you would be better off keeping both cards: Your credit score is made up of several pieces. Some count for more than others, but they do all count in calculating your score. Let’s look at the top three factors that affect your score.
The most important piece is on-time payments. It concerns me a bit that you have had late fees on your Visa. As you say, 14 years is a long time, and I hope that those late payments are from a long time ago. Damage from a late payment lessens with each passing month, but stay on your reports for seven years.
While the impact lessens over time, those negative entries will disappear from your credit file once that time period has passed.
But just being late doesn’t mean you were dinged on your credit report. It’s possible those late payments were less than 30 days late and not reported (if you paid your bill before the next billing cycle). You will still have paid a late fee, which no one likes. At a minimum, your late payment means that you paid an unnecessary fee and interest charges.
Tip: The negative credit score effects of both opening and closing a credit card are short-lived, as long as you keep low balances on your other cards and make on-time payments.
The second most important piece in determining your score is credit utilization, or the amount and type of debt you owe. You need to aim for low utilization and high available credit. As you charge an item, your available credit goes down; as you pay off your balance, your available credit goes back up.
The less you owe in relation to the amount of credit you have available, the higher your score.
Finally, let’s talk about credit history. While only about half as important to your score as on-time payments and available credit, it does still count. Potential lenders like to see longevity in your financial relationships. It is one tool for lenders to see how you manage your finances over a long period of time. You have that with both of these cards. I will say, though, that your Visa is more important because it is the older account.
You did not tell me what your credit score is at this time. If you are intent on having that shiny new rewards card, you need to be fairly certain that you are going to qualify. The Capital One Venture Rewards Credit Card requires good to excellent credit scores between 670 to 850.
The last thing you want to happen is to take a hit on your score due to the hard inquiry generated by a new credit application and then be turned down at the same time. The best way to avoid that is to look at your credit reports for accuracy and find out your score before you apply.
Check out CreditCards.com to find a rewards card once you know your score. This is not a guarantee, but it is a good indicator.
Remember to keep track of your score!