Is it better to close card or leave it unused?
in Stoozing: free cash from credit cards
6 replies 3.7K views
I have just graduated from university and want to improve my non-existent credit score. I was thinking of using a credit card to buy a car and then pay it off straight away. BUT I don't want to continue using the card. What is worse: closing the card or leaving unused? Or should I not bother with any of it and buy my car with my debit card?
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Having an aged credit card account on your credit file demonstrates to a potential lender stability and the ability to successfully manage credit accounts.
It is good to keep using the credit facility. Just do your normal shopping on the card, staying within your normal budget. Then pay off the card in full after you have received the statement. Easiest method is to pay by Direct Debit the full amount.
Don't worry about your credit score. Lenders don't use it when making a decision. They score you independently, against their criteria and policies, using the data in your credit file plus any data you supply during an application.
Edit: And if you have budgeted to buy a car, then make the purchase on a credit card and pay off in full as per above. The added advantage of paying by credit card is that you get s75 protection should the purchase turn sour.
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If you've not got a credit card and want to apply, how do you know the card will give you enough credit limit, or is your car costing £200?
As for the effect of the card on your credit history, it looks better to lenders if you have held an account for a longer period - so I'd recommend keeping the card open after you pay it off. Better to be open and unused (but still available to be used if needed) rather than closed IMO. Use it for small monthly purchases, and pay in full by direct debit and it will slowly make you look better to lenders over time. Ignore the scores from the CRAs as it is basically meaningless - every lender will score you differently based on the contents of your file. Focus on making your report look good to lenders instead.
Dealers aren't that happy to take more than a deposit on a card either: they pay a % (I believe between 2-3%?)....
I once beat a dealer into submission on this topic: the junior sales rep had told me I could buy the £15K car on card.....so when we went in to pick up.... he was told by his 'finance director' "sorry, no, that isn't allowed"....I made him go back 'cos I would walk away if I couldn't....& sure enough, they gave in!
Meant a further £200 to me at the time, which was not to be sniffed at!
Maybe for a cheap motor (eg 2-3K) it could still be bought on card, but as mentioned above, put some on the card & the whole amount gets protection