Suze Orman Says Don’t Cancel Credit Cards - I Don’t Care
Suze Orman and a bunch of other personal finance gurus counsel you to not cancel credit card accounts. The reason being it ‘damages’ your FICO credit score. See, when you close accounts, it reduces your available credit. If you have any balances, your ratio of credit used to credit available is higher. That’s bad because if you need a loan, you are charged an interest rate based in part on your FICO score.
I just closed two credit card accounts I’ve had for a little less than a year. I got them both for the free up-front rewards they offered. The AMEX Gold offered the something like $200 in account credit after first purchase (it’s now $250 or a plane ticket). The Citibank card offered $150 in gift cards if I remember right. They’re both gone.
I don’t care what Suze Orman or anybody else says about closing unused credit card accounts. If you’re a responsible person with a good credit profile, you won’t care whether your FICO number dips 15 points for a couple of months. And it only may dip. Depending on your available credit ratio, it might not change at all.
Though the exact formula Fair, Isaac (the company behind FICO) uses to calculate the common FICO is guarded like a state secret, it’s generally agreed it’s composed like this:
As you can see, amounts owed is about a third. This component is really the ratio I talked about earlier - credit used to credit available.
Why not keep the accounts open anyway? They’re only a couple of pieces of plastic, right? Simple - hassle. I don’t want two more cards hanging around. These days, with our second child coming in a couple of months, I’m all about reducing. Reducing clutter around the house, reducing complicated credit card/bill paying strategies to maximize rewards, just reducing.
So regardless of what Suze Orman says, I cut up two credit cards today.
(Graphic courtesy Consumerism Commentary)
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August 10th, 2007 at 12:01 pm
[…] other day, I canceled two credit cards. That left me with just one, issued by my all-purpose financial services company, USAA. The problem […]
January 30th, 2008 at 4:27 pm
I kinda agree, but I say that as a non responsible credit person. I know if I keep them, sooner or later I will use them. Better to stop that possibility in it’s tracks.
May 22nd, 2008 at 9:26 pm
I’m with Jeremy on this one. Wish I had more willpower.
June 12th, 2008 at 6:57 pm
I agree with ya brother.
July 8th, 2008 at 7:19 pm
Take what Suze Orman says with a grain of salt. I agree with you I actually closed two of those Gold Amex cards myself recently and I only signed up for them for the bonus a year ago. I just keep the cards I use and that’s it. No point in the extra hassle.
September 8th, 2008 at 1:39 pm
The only reasons to need a good score is to buy a house. Once you have bought a house, the only way to trash your credit is to not make payments. If you aren’t planning on buying a house or car withing a few month, closing credit cards will not hurt in the long run.