One of my goals for this year, that I have partly accomplished, is raising my credit score. I need to get my score above 740, at minimum, so that when I apply for a mortgage loan, I’ll be able to get the best rate. I still need to raise my score about 40 points (this is an average as all 3 credit bureaus are reporting slightly different scores). One thing I’ve learned about improving my credit score, is keeping my debt to credit ratio low. Since I’ve paid off all of my credit cards, I’m looking pretty good here. However, another factor that affects a credit score is how much total credit banks are willing to loan you. Since I’ve been on a mission to improve my poor credit history, I haven’t had much credit extended to me these past few years leaving me with very low credit limits.
So, here is my dilemma: I have two credit cards with low credit limits that are charging me monthly fees and/or annual fees (totaling approx. $155 for the year) . I don’t use these cards at all anymore. However, there is a catch with these two cards: they were originally a way to pay off old collection debt. These cards were offered to me about 6 years ago to pay off two other credit cards that had gone into collections. Once I paid the old debt off in full, they extended a limited amount of credit to me. I’m now thinking of canceling these two credit cards now that they are paid in full, but then my overall total available credit limit will be reduced by almost $1,000. How will this affect my credit score? Will it ding my score by a few points? Since I’m hoping to apply for a mortgage loan with in the next year or so, I’m trying very hard to keep the activity on my credit report to a minimum.
After doing some research, canceling my two credit cards would probably affect my credit score a little bit. By how much, I don’t know exactly. I have two options; A.) I cancel these cards and save $155 annually, with the potential of losing a few points off my credit score, or B.) I keep these cards until I am able to purchase a home. That could be up to 18 – 24 months meaning I would have to spend up to $310 on fees, but I’d be saving my credit score.
For now, I think I will keep the cards. If purchasing a house becomes ever more elusive and my time frame extends to more than 24 months, I might just go ahead and cancel these two cards. I do know that when I obtain that mortgage loan, these two cards are getting the ax!
What do you think? Would canceling these cards now be beneficial? Am I making the right choice by keeping these cards a little longer?
7 Comments
sounds like sub-prime cards to me. Ii would say cancel them. At most, from readers emails etc, you lose a few points (since they are low limit cards).
Then again, when are you getting your mortgage? If it is tomorrow, then maybe you could hold off a couple of months. If it is in six months time or a year, then I’m sure there is no harm.
Alternatively, you could cancel those two, wait a bit and apply for a no annual fee card. Since your credit is much better than it was back then, you’ll probably get a card with a higher limit than these 2 combined.
@Mr. Credit Card – Thanks for that advice. I’m a little worried about applying for another card since lenders are being much tighter when it comes to extending credit. But, you make a very good point. Canceling those two cards would only affect my credit by a few points.
Despite the fees, I think you’re doing the right thing by keeping the CCs open ONLY because you’re looking to buy a house. And what you’d save on fees could be minimal compared to the additional money you’d have to spend on a mortgage with a higher interest rate because your credit score went down.
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@RainyDaySaver- That’s what I was thinking. Only because I’ll hopefully be purchasing a house in 18 months or so, I’m really trying to limit the amount of changes that would be reported on my report. Thanks for your input!
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@Mike – thanks for these tips. It looks like I should keep these cards open a bit longer if I intend to take out a mortgage. But, yes, fees stink! That’s why I can’t wait to eventually ditch these cards.