I used to be a huge airmiles accumulator. I shopped regularly at sponsors (namely, Safeway, where I bought most of my groceries) and used an airmiles credit card to get even more points. I actually got enough airmiles to buy a KitchenAid mixer. However, when my accumulation rate dwindled and I learned the cash value of airmiles — less than 1%! — I decided to switch to a cash-back credit card. I redeemed my remaining airmiles for Banana Republic gift cards and closed my airmiles Mastercard account.
I thought about keeping the credit card, but what did I need 3 credit cards for? It had the shortest credit history and the lowest limit, so I couldn’t think of any reason to keep the account open. After I closed it, my eyes then turned to my line of credit. Should I close that too? What about all the other kinds of credit I keep?
Types of debt/credit I’ve tried:
- credit cards
- department store cards (not the wisest choice, let me tell you)
- lines of credit
- student loans
- RRSP loan (somewhat of a waste of time for me)
Types I haven’t, but could probably get:
- bank loan
- payday loan
- car loan
- mortgage (I will probably go for the ING un-mortgage)
- investment loan
- personal loan from friend or family member (actually I would like personal GIFTS please, you may donate via PayPal. I’m just kidding)
In short, there’s a lot of credit and debt to be had out there.
I received my line of credit from my bank when I was in my second year of university. I used it to fund my braces and some shopping sprees at Sephora. In any case, I don’t need it anymore but I always have that fear that I might need it later — which makes no sense, because every month that passes I become more financially secure but I worry anyway.
Would I use it in an emergency? I don’t think so. I’m not sure what catastrophes are in my future, but I can cope with any immediate crisis costing $2,100 or less using my emergency fund, and if I found myself in need of more, I think I would probably turn to cashing in GICs early or liquidating stocks before I take on any debt.
Would I use it to buy a car? Probably not. I recently received a letter that they’re raising the interest rate on this line of credit from 6.75% to 8.75% and I feel like I could probably get a better rate on a traditional car loan — especially if I snag one of those “0% for 5 years” rates.
Would I use it to fund a down-payment on a home? No, because the thought of adding a big line-of-credit payment AND a mortgage to my life at the same time makes me think I might have to give up something like, oh I don’t know, buying food.
In short, I don’t need it — but should I keep it? The account is now about 4 years old with perfect payment history. I’ve made somewhat of an effort to keep it alive over this time with various balance transfers, but for the most part it’s a neglected step-child from a previous marriage with Reckless Spending On Consumer Crap.
My concerns with keeping it open are: firstly, being overly exposed to identity theft. I’ve had my credit and debit cards stolen before. Even though the bank acted quickly and painlessly put everything back as it should be, I still wouldn’t categorize it as a particularly fun experience. Furthermore, my credit cards have much lower limits than my line of credit. I really don’t want an identity thief to get a Mini Cooper before I do, especially with my account. Secondly, what if I relapse into Spendy McSpenderson again? Should I really have access to that much money knowing my penchant for luxury goods? Isn’t that like keeping your liquor cabinet stocked even though you’re an alcoholic?
What are your thoughts? Keep the account for the credit history and “just in case”? Or close it to protect myself against identity theft and the opportunity to make bad financial decisions?
I’m not sure how much it would lower your credit score by closing it, but could you have the total amount you can borrow lowered? It would lessen the amount that somebody could steal from you and keep your account history at the same time. Assuming that lowering it wouldn’t affect your score, I have no idea if it would or not. Just a thought.
That’s a good idea. I think I’m definitely going to do that. Then if I still want to close it a few months or a year from now I can always do it then.
I don’t know how much it would effect my credit score either =\ at this point I’m unconcerned because I have no intention of applying for anything that will require my credit score.
Even if you have an excellent credit score , having too much available credit can cause banks to turn down a loan request. It’s not what you owe and how you are paying it back… it’s also how much you COULD owe.
And…an Alberta Premier’s (Governor) wife was turned down for a credit card because her husband’s job was “temporary”.
I think it’s a personal choice to close it or keep it open. I like DebtnTaxes’ idea of lowering the credit amount being offered. I’m sure they wouldn’t have any issues with that!
Btw, I loved this line: “I’ve made somewhat of an effort to keep it alive over this time with various balance transfers, but for the most part it’s a neglected step-child from a previous marriage with Reckless Spending On Consumer Crap.” I was cracking up at work!
hahahaha yes that is probably my favourite line this week!
a good question.. and one that i have been pondering as well.
i always hear that keeping credit open helps your score..
but i would think there would be a little bit more risk from identity theft by having all of that credit just sitting there, waiting to be used.
the idea of asking your creditors to lower your limit sounds pretty solid to me..
Hmmm this is a tough decision. I would try to have it lowered so that you could lower the possibility that someone could steal your identity and do too much damage.
If you are planning on purchasing a home, make sure you have enough lines of credit to your name. When my fiance and I went to get a mortgage for our house where we now live, She almost didn’t have the 3 lines of credit that the lender required to secure our loan at a good interest rate, even though we both had 0 debt (no student loans at that time, she has since gone back to grad school) and we both had steady jobs.
Imagine that! Since she always paid for things with her banks debit card, she almost didn’t qualify!
Just a different point of view to keep in mind. I personally use one of my credit cards for every single expense that is not a repeatable bill (big cheer for web bill pay), and I pay it off every month so I never pay interest and accumulate rewards on the money I spend.
Since my primary card is discover, I keep a second card that is only used at places that do not accept Discover, since they tend to charge businesses more then the other major cards.
really?? I need a certain number of credit accounts to qualify for a mortgage? I actually have a suspicion something like this is true, but I’m hoping that if I have 2 credit cards and my student loans (2 accounts: federal and provincial) that gives me enough credit history to qualify… or maybe I should keep the line of credit too.
Actually I think I’m going to take the advice of many of the commenters here and just lower the limit on my LOC but keep the account open.
Thanks for your input! I definitely want a mortgage in the future and it’s good to know what will help me get there.
Like everyone else, I too feel it is a personal choice. I’ve thought about opening a line of credit once, just to have a safety net, but the interest rates on them turned me off, not to mention, I have no idea what I would use it for.
it’s true, the interest rates aren’t great — but 6.75% or even 8.75% is significantly less than my credit cards with 19.99%, which has been helpful in the past when I’ve had to carry a balance.
In the UK, you can’t apply for any credit whoutit having a credit check or credit score completed. People will not lend you money whoutit completing some sort of checks to ensure that you are capable of paying the money back.For instance, if a stranger came upto you in the street, gave you a random name and address and asked to borrow a3100 from you, you would not give them the money! If there was some sort of checks you could complete so you knew that they were who they said they were, knew that they lived at that address and had a previous history of paying people back, you would be more willing to lend them the money and there would be a higher chance of you getting this money back.Obviously the above is only an example, and you, yourself, would never lend money to a random person in the street. In effect though, this is what banks/finance companies are doing to their customers which is why the checks have to be completed.Hope this helps you to understand a little bit more why they are completed!
If it were me I would close it because I hate keeping things I don’t need, but I’m also unsure about how it would affect the credit score.
May I ask how you closed your credit card account? Do you just call the customer service and they’ll do it immediately? Sorry for the newbie question!
no prob! Yep, I just called and asked them to cancel my credit card and close the account. It takes a few minutes and then they tell you to cut up the card. I was told I would receive a letter confirming the account had been closed within 10 days.
They were pretty good about it, too. I thought they’d actually put up a fight and make offers to increase my limit or lower my interest rate in order to make me stay, but they didn’t ask any questions.
The closed account will appear on your credit report as closed by the customer too, so getting that annual check up is a good way of making sure they really did what they said they would and shut down the account!
I keep a Visa, an MC, and a US $ Visa.
I do also have a PC Financial MasterCard, but I only spent a total of about $25 at various times to get a ton of points; I’ve got about $60 in free groceries remaining, whenever I want to use them. I’ll cancel it when I’ve used them up.
You’re right that having too many sources of credit lying around is silly. Bankers tell you to keep them and acquire more for an “emergency” but they really just want to tempt you into getting into debt servitude.
What credit card do you use? I hope it’s the MBNA SmartCash MasterCard.
it IS the MBNA SmartCash mastercard =)
…. does this mean I just did something right in your eyes?? oh god, the world is ending..
I keep all my credit accounts open even when they’re paid off. It’s a sure-fire way to keep my credit utilization low, which always helps the credit score.
A line of credit served me well as a student, but now that I have an Emergency Fund set up, I think I’ll be just fine without it. Paying interest sucks!