I ended up taking advantage of a low APR that my card offered last November, but the good folks at Citi apparently sent out notices to cardholders that the rate was going to change to much higher rate in the next month. If I decide not to agree to the terms, the card will be closed at the expiration. What’s the impact on my credit score? I’m above a 740 at the moment and don’t want to do anything to mess it up. I do have the cash on the sidelines to pay it down.
As long as the card is paid as agreed, the act of closing a card doesn’t hurt you. Caveat, lenders like to see at least one account that has been open for 5+ years. If this is your only 5+ year account, you might want to pay it down, but keep the account open. Also, they like to see a variety of account types (fixed, revolving, mortgage) so if this is your only revolving account, you should also pay it down, but not close it.
http://www.myfico.com/Default.aspx This site is real helpful for various credit card and credit score related questions. I’ve used the search function with success.
thx for the link. going to pay this down and just keep the account open.
BigRed08: that is exactly what you should do.
You know, when the interest rat on a credit card balance goes up (up to late last year I’ve always paid balances in full, but lately things are more difficult) I wonder if there is any way to buy back my own debt at a discount. I mean, if I were an ABS of my own debt, the price would go down and I could buy myself back. I know some sovereign countries can do this when bad things happen to them. Is there any way to engineer that with ones own debt? Is that what some of the consolidators do?
With my card the cheapest rate is paid first. So if you owed 10k at 8% and you wanted to pay that off with the new 3% they were offering, you couldn’t take out 10k on the 3% and pay the 8% becuase the 3% would have to be paid first.
yea same thing with my card…cheapest rate is applied to first.
bchadwick Wrote: ------------------------------------------------------- > You know, when the interest rat on a credit card > balance goes up (up to late last year I’ve always > paid balances in full, but lately things are more > difficult) I wonder if there is any way to buy > back my own debt at a discount. I mean, if I were > an ABS of my own debt, the price would go down and > I could buy myself back. I know some sovereign > countries can do this when bad things happen to > them. > > Is there any way to engineer that with ones own > debt? Is that what some of the consolidators do? The problem is that there’s 2 ways to look at this. Sure, you can frame it as rising rates mean falling debt prices. But they’re likely not raising rates because you’ve been downgraded somewhere. They’re doing it because they can. So if you have the same creditworthiness, and you’re now paying a higher coupon, then the paper should sell for a higher premium. What you need to do is default for a few months, and then buy it back. 
Damn rules against market manipulation.
As far as effect on your credit score, closing your credit card will have minimal effect initially, if any (assuming that it wasn’t your only credit card). In FICO formula, one of the main components is the average credit life, which is the sum of the ages of all your cards divided by number of cards. When you close an account, it is still counted in the formula but disappears from your file after 10 years from the date of closing (so in 10 years benefit of long card history is lost). That’s why there is no immediate effect on credit score or rather couple of points change because it may affect other parts of FICO formula like credit utilization, since by closing an account you are reducing available credit line, and if that line was substantial and the ratio of existing balances to remaining credit line becomes large then there could be a bigger negative effect. As a rule of thumb if you have a card with substantial age and bunch of other cards which are relativelly younger, you wouldn’t want to close it even if it has bad terms associated with it (just pay it off and don’t use). Such cards will be constant drivers of higher marks in the ‘average credit life’ portion of the formula. That’s usually applies to cards you got at younger age. However, if you have 3 cards that you opened 10 years ago, giving you average life of 10, then by closing one of them it sill remains 10, and in such case card closing won’t matter. What does have a negative effect is opening new cards, when you average credit life is relativelly short. So when you get a new card that promises you attractive terms, think twice about taking advantage of it, if you are very cautious about your credit score.