Is it better to close card or leave it unused?

elhutchy · 10 August 2018 at 4:10PM

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?

Willing2Learn · 10 August 2018 at 4:16PM

Hi elhutchy and welcome to the forum

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.

nic_c · 12 August 2018 at 9:20AM

Where are you getting the car from? Does it come with a warranty?

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?

James145 · 15 August 2018 at 2:31PM

It depends on your current circumstances - if you don't have access to much credit at the moment having a credit card but not using it will show you aren't desperate for credit. However, if you have access to a lot of credit already (such as other credit cards/loans), then having more credit might reduce your credit score, as lenders might see you as close to being over-leveraged.

Sean_K · 31 August 2018 at 12:09AM

I'd say close it after non use of a few months.

PRAISETHESUN · 31 August 2018 at 12:41PM

I don't think you'd be offered a credit card with a high enough limit to buy a car straight out of uni unless it is dirt cheap, but I could be wrong. Either way, paying even just £0.01 by card is enough to qualify for S75 protection so definitely worth it. Private sellers won't usually accept card payments, so this is only really relevant unless you are buying from a dealer.

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.

cfw1994 · 6 September 2018 at 6:01PM

PRAISETHESUN wrote: »

I don't think you'd be offered a credit card with a high enough limit to buy a car straight out of uni unless it is dirt cheap, but I could be wrong. Either way, paying even just £0.01 by card is enough to qualify for S75 protection so definitely worth it. Private sellers won't usually accept card payments, so this is only really relevant unless you are buying from a dealer.

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

Is it better to close card or leave it unused?

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