‘I’m retired and live off Social Security’: Will canceling 10 credit cards hurt my credit score? If so, how long will it take to recover?

Rate this post

April is National Financial Literacy Month. To mark the occasion, MarketWatch will publish a series of “Financial Fitness” articles to help readers improve their fiscal health and offer advice on how to save, invest and spend their money wisely. Read more here.

Dear Quentin,

I am a 67 year old widower with a credit score of about 800. I am retired and living on Social Security of $1440 a month. I live rent free and my car is paid off. I pay off my credit cards every month. About 18 years ago I went bankrupt for the second time. To rebuild my credit, I got not-so-good credit cards. Today, however, I have other credit cards with no annual fees and much lower interest rates.

The problem is that I have about 14 credit cards and want to get rid of about 10. The average age of my cards is about eight years. I don’t use most cards and don’t want to pay annual fees. How do I get rid of the cards? I know getting rid of it will take a temporary hit to my credit score.

Can I do it with time? Your help on this matter would be greatly appreciated.

Too many cards

Dear Too,

Before canceling unused credit cards, see if you can cancel the annual fees. But your instinct is good. There are too many credit cards to manage, and they can leave you vulnerable to identity theft and credit card fraud.

Closing your credit cards will affect your credit utilization ratio, which is the ratio of your credit card balance to your credit limit. It’s important to keep this ratio low, so make sure you have a zero balance on any cards you cancel. In general, however, most experts recommend keeping your credit utilization ratio below 30%.

“Generally, a low credit utilization ratio is considered an indicator that you’re doing a good job of managing your credit responsibilities because you’re far from overspending,” according to Experian. “A higher rate, however, could be a signal to potential lenders or creditors that you have trouble managing your finances.” But with many cards this score also adds up.

The three main credit bureaus: Equifax EFX,
Transunion TRU,
and Experian EXPGY,
— Also consider the length of your credit history. Obviously closing your accounts would affect this. Varies by credit bureau. For example, a FICO score has five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). ).

Before closing your accounts, redeem your credit card points and miles and make sure there’s a zero balance on those cards before canceling them. Keep cards that don’t have an annual fee so they don’t affect the length of your credit history. It’s also worth keeping a card with a high credit limit.

Be strategic about which cards you choose to close. “Check your credit report to identify your oldest credit card account and plan, in most cases, to keep it open,” advises Experian. “This is also a smart idea when the card you’re considering closing has a high credit limit and canceling it would greatly reduce your available credit.”

This is especially true if you plan to take out a loan. If you have a bad credit score and are planning to buy a car on credit or take out a mortgage, this can obviously mean that you are denied the loan or end up paying a higher interest rate. The good news: From what you’re saying, it doesn’t sound like you’re planning on taking out a loan anytime soon.

It looks like you don’t have a diverse credit mix since you don’t pay rent or a mortgage and your car is paid off, but that’s a relatively small part of your overall credit score. It usually takes three to six months for your credit score to recover. You can cancel about three cards per month for six months. I suggest canceling the cards that cost you the most in fees.

“Closing 10 of your credit card accounts seems extreme unless you believe the annual fees involved are causing you hardship,” said Mark Hamrick, head of Bankrate.com’s Washington, D.C. office. “Maybe you could explore with these providers if they have some no-fee cards that you could convert them to. That sounds like more of a win-win to me. You can maintain creditworthiness and access to credit, if you need it in the future.”

Your credit score should fully recover within a year, or less. Good luck with managing your finances in the future, keeping your credit utilization low and maintaining a long credit history. This will be crucial if you need any type of loan in the coming years. The best time to take a hit on your credit score is, of course, when you really don’t need it.

meu You can email The Moneyist with any financial and ethics questions at qfottrell@marketwatch.com and follow Quentin Fottrell at Twitter.

Check out Moneyist’s private Facebook group, where we seek answers to life’s thorniest money problems. Post your questions, tell me what you want to know more about, or rate the latest Moneyist columns.

The Moneyist regrets not being able to answer the questions individually.

More from Quentin Fottrell:

‘Cry me a river, right?’: I sold our rental for $325,000. I want to invest the money. My wife wants to pay off our mortgage. Who is right?

My father named my late mother as the beneficiary of his $80,000 life insurance, but my stepmother says it belongs to her. Who is right?

“I’d feel guilty charging her $600”: One of my two roommates moved out, and my girlfriend is moving in. Should I charge him the same rent?

Source link

Leave a Comment