Open debt ratio...close open accounts???

iVillage Member
Registered: 06-23-2004
Open debt ratio...close open accounts???
3
Wed, 01-19-2005 - 3:37pm

Hello,
I have 4 credit cards.
2 have a balance.

Let's say that each card has a limit of $5,000.
That is a total limit of $20,000.

I am considering closing the 2 cards that are paid off.

My concern is that I have heard if you close your cards, that can lower your FICO score....because the debt ratio is affected.

If I have a balance on one card of 3,000 and the other at 4,000....right now my ratio is $7,000 out of a possibility of $20,000.
But if I close the two...that lowers my ratio....and makes it $7,000 to $10,000.

I understand that having the 2 cards with a possible spending spree of and additional $10,000 is not good to just have that open credit out there......

So I am torn, do I close the 2 accounts that are paid in full, or leave them open to help out with my debt ratio?

THANKS so much for reading this and replying.....

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iVillage Member
Registered: 02-25-2004
Wed, 01-19-2005 - 6:51pm

I don't know if I have this right but here's what my understanding is....

If the 2 cards you're thinking of closing are some that you've had for the longest time - keep them open. To creditors it looks good if you've had credit established with cards for a long time with a small balance or no balance. It shows that you handle money well and with care. And you are correct in that it does affect your debt ratio.

Also, if what you're worried about is overspending, don't close the accounts that have no balances, simply cut the cards up. No card, No spending. The worste that could happen is if some point later in the future you do need that card you'd have to call the company to send you a replacement card.

About a year ago DH and I DID close some accounts. When we did though they were cards with such low balances and were what were considered "college cards" that it didn't really make a difference and it was just nice not to have them anymore. We still have enough left on our credit though for lenders to look at if need be.

Again this is just how I understand it, I could be wrong and others may know better than me or you can always search for further info on the web.

Good luck.

iVillage Member
Registered: 10-21-2003
Wed, 01-19-2005 - 8:16pm

Things that hurt your credit:

Late payments
Inquries
High proportion of revolving balances to credit limit (this is my downfall)
Taking new credit/age of accounts
Too little tradelines

Things that help your credit

Making payments on time
older tradelines with good payment history
Keeping revolving balances at 30%-40% of total credit limit
2-3 Active tradlines that include revolving charge cards and installment loans (mortgage, car loans, signature loans...)

I work in the mortgage business and see peoples credit everyday and this is what I have learned in my expierence. Unless you are worried that you cannot possibly NOT use thoes two cards, I would recomed that you keep them open and cut up or freeze them (I mean literally freeze them in a jar of water or some other substance...it makes you think about using them a lot more than making a call to have new ones sent out). The credit agencies do not look at individule balances in relation to limit, they look at total balance to total credit limit. People that I see with great credit all maintain at least two revolving accounts and one instalment acount. Older accounts with a good pay history will help your FICO, even if there is no activity.

Just my $0.02

iVillage Member
Registered: 06-23-2004
Thu, 01-20-2005 - 10:26am
Thanks, the 2 cards with zero balance....I WILL NOT use...I cut them up years ago and that is what helped me to pay those off first.
Thanks for the replies.
I just don't want to do the wrong thing and close or not close these 2 accounts.
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