 Think
before dumping credit card
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 Dear
Dr. Don,
I've had a certain credit card company for almost 20 years
and have been very happy with it. Recently, I was notified that another company
bought them out. I don't like this new company at all and, in fact, I canceled
an account with them years ago.
Should I cancel the card even
though I've used it for about 18 years? Everything seems to be changing with the
card. They even sent me a new credit card with the name of the company I don't
like on the front. It is a slow, systematic changeover, and already the new company
is not being honest. Please tell me what to do.
Thank you,
-- Switcheroo Blue
 Dear
Blue,
I'm a strong advocate of voting with your feet when you don't
like a company's products or services. In other words, leave. That's especially
true when it comes to money matters and you don't think the firm is being honest
with you. Still, before you cancel the card, I'd like you to take a couple of
steps to make sure that closing this account isn't going to have a negative impact
on your credit history.
Lenders use your credit score along with other factors,
such as your income and banking relationships, to determine whether
they want to extend you credit. Your credit score is based
solely on the information in your credit report. One factor
in your credit score is the length of credit history. According
to myFICO.com,
the length of credit history is roughly 15 percent of your credit
score.
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Credit score factors: | |
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The length of credit history looks at how long the
accounts have been open, individually and by type of account, and
the time since the last activity in an account. It looks at
open accounts. If you close the credit card account, the payment
history will continue to show up on your credit report, but the
closed account's payment history won't go into the mix for your
credit score. It also changes the ratio of amounts owed to
credit line available. That's why myFICO.com doesn't recommend
closing accounts as a short-term strategy to improving your credit
score.
My recommendation is for you to pull copies of your
credit report from the three principal credit bureaus: TransUnion,
Experian and Equifax. They're free if you haven't used up the
one free report from each that you're entitled to every year. The
Bankrate feature, "How
to get your free credit report," explains how to get those
free reports. Review your reports and get a sense of your credit
history without this account in the mix. If you want to know
your credit scores from the bureaus, you'll have to buy them, but
Bankrate has partnered with myFICO.com to provide a free FICO
score estimator.
If you don't have many open accounts other
than this credit card you should consider holding on to it as you develop a credit
history with another credit card provider. At a minimum, you want to keep
the account open while you're shopping for its replacement.
Don't fill out multiple applications, because every
time you do, the application shows up on your credit report. Multiple
applications are red flags to lenders and work against you getting
approved for credit. The applications create an inquiry on
your report that stays there for two years and is considered in
your credit score for the first year.
Instead, you should
shop credit card providers using Bankrate's credit
card search to find a card that has the features you want in a credit card.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."
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