Cancelling Credit Cards

Tom_Williams

Hi All

Don't post here regularly but need a bit of advice.

I have been in credit card debt for about 8 years, since leaving uni basically.

Using Martin's advice I opened a few long term zero % balance transfer cards and this helped me clear off a lot of my debt quite easily without mounting interest charges.

Once I had cleared my old cards I cancelled them one by one as the balances cleared, and I am now in the position that my last 2 card accounts opened to help clear debt are nearly cleared.

I am about to apply for a mortgage with my wife and want to know if it is best to leave these accounts open with no balance or to close them and remove the opportunity to spend.

One thing I am liking now is that I am almost clear of any debt and having not used credit cards for any purchases (aside from honeymoon for security) for 4-5 years I am liking that I do not have to rely on them, and would prefer them gone.

My concern is that closing them may affect credit score when applying for a mortgage.

What are peoples thoughts?

Tom

withabix

Depends on how many you've got.

If you've got a lot of cards, the amount of available credit may damage your creditworthiness for other planned borrowing.

Cancel the ones with high rates.

Keep one low-rate card.

Cut up and shred the card for one of the others (to remove temptation).

You can easily get a replacement card in 3-4 days if you have an emergency need for one.

Alternatively, close all of them and get a 12 month 0% Tesco.

Tom_Williams

I have 4 now.

My own debt is down to £600 and I have access to about 8k of credit.

I would keep 2 out of the 4 as they are linked to current accounts.


Tom

CannyJock

Always an idea to have your main card (0% purchase, cashback or rewards) for monthly purchases and a backup just incase.

It's always easier to get credit when you've got credit - so cancelling all your cards wouldn't be a good idea IMO.

Once you're not paying any interest on the cards, it's a good idea to use the card each month and pay in full - this maintains your positive payment history and demonstrates to future creditors that you've no problem with having credit.

withabix

CannyJock wrote: »

It's always easier to get credit when you've got credit - so cancelling all your cards wouldn't be a good idea IMO.

Maybe not 'all cards', but many lenders look at how much credit you've got access to. For instance, if you've opened lots of (say) Shop Direct accounts to take advantage of various discount codes, you could well have £10-£20,000 if expensive credit avaialble to you, despite having absolutley no intention of using it ever.

That will count against you with many lenders.

Old credit cards you've left open but unused can have the same effect.

You may only be using one car dwith a £5k limit, but what about the other £25k limit you've got spread across those other five cards you've used over the years?

They automated borrower assessment software will think:

What happens to your ability to repay the new potential lender if you go on a spending spree and blow that £30k on 'lifestyle' spending and then reosrt to that £20k limit you've got at Shop Direct for your clothes, electronics, white goods and furniture purchases?

Tom_Williams

Ok so essentially having less available credit is a better thing overall regardless of whether you intend on using it or not.

I hate with a passion store cards and would rather poke myself in the eye with a red hot poker than open a store card at 29% interest.

Will get rid of one of them when I am done then, and reduce my potential available debt limit to about 5k.

thanks

tom

CannyJock

withabix wrote: »

you could well have £10-£20,000 if expensive credit avaialble to you, despite having absolutley no intention of using it ever.

You may only be using one car dwith a £5k limit, but what about the other £25k limit you've got spread across those other five cards you've used over the years?

OP only has 2 cards and while he's implied that the balances have been getting less and less as he's cleared other cards, he hasn't said what the limits are. Naturally, if the cards have £25K limits each and his income is only £10k then we're in a different position from them having something like £2k limit each.

No point speculating on what if's with 5 cards when he only has 2

My advice to him is as before - keep the two cards he has. Closing them down when cleared, as he's done with the other cards he's had will mean having no active cards.

EDIT: Turns out from below there are 4 cards in the mix - though no such thing as a joint card so not sure what he means by that. Either way, keep 2 cards.

Tom_Williams

I have 3 in my own name, one in joint with my wife.

In my own name I have access to about 8.5k which when I have cleared the final £600 I will not need, therefore by closing the 2 cards I would close when clear I would then only have 1 card and one route of getting into CC debt again.

I know it's only a low total of available credit at the moment, but if what i see above is correct the less cards and less potential debt the better I will look to mortgage companies or others lending money?

Tom

Fruit_and_Nut_Case

Tom, I think the conclusion is that we need to strike the right balance between no credit availability and too much credit availability. The problem is that we just don't know precicely where the potential lenders would like us to be on that continuum. If we did know it might be too easy to play the system.