I have two credit cards. I’ve had the accounts for approximately 4 and 8 years and they have high limits. If you know the rules on credit scoring, you know that from a credit rating perspective, I shouldn’t close these accounts.
If you’re a Dave Ramsey follower on the other hand, you would argue that I should close these accounts. I’m stuck in the middle on this issue and here are my thoughts:
Why I Should Close My Credit Card Accounts
Even though I have high limits on my credit card accounts, I now have more money in the bank than those limits. That being said, isn’t my savings account sort of a high limit “credit card” that’s paid off in advance for emergencies? Why then, would I want to keep the credit card accounts open as well? I don’t need both, technically. Dave Ramsey’s view is that there is never a reason to keep a credit card account open. He feels that a credit score is complete bogus and has no real correlation with financial responsibility. To him, it’s just a score of how good you are at borrowing money and paying it back.
I agree with Dave on that. I don’t want to worship at the alter of The Great FICO, but for some reason haven’t gotten myself to close those accounts yet. All my reasoning says I should, but there is something holding me back. Perhaps I just want all the help I can get if I decide to get a mortgage someday after all. Maybe I just like the feeling of having the available credit if I ever want to use it, even though I never want to go into debt again.
Why I Shouldn’t Close My Credit Card Accounts
According to the information available on credit scoring, closing my accounts would essentially change my credit utilization ratio from 0% (since I don’t use them) to non-existent. According to Dave Ramsey, once I close the accounts, I would then have no open credit since I am debt free. This would cause my credit score to disappear within a matter of time. Well, Dave says that a solid down payment, solid employment history and just plain old common sense will allow a person to get a mortgage without a credit score. He says no credit score is better than a bad one. But is no credit score better than a good one? That’s the argument I’m struggling with because I do have a good one.
So basically, closing the accounts will change my credit score from being high to disappearing. That’s the decision I have to make. I do know that I don’t ever want to be in debt again. The only possible borrowing I’ll ever let myself do is a home mortgage. I do want to pay cash for a home someday, but I know that may or may not get a chance to happen. That being said, out of principle, I should close them because just using them at all is borrowing. It’s debt. Something that I am against, now.
Oh, I almost forgot. I should keep them for the miles/points, you say? I honestly don’t care about those piddly things. Personal finance is about the lifestyle, not the math. Having and using credit cards because of the miles/points is math. That won’t make you wealthy. In fact, I don’t think points will have any impact on your life at all, except for maybe tempting you to spend more and go deeper into debt so you can get the 2% cash back or free flight on your otherwise expensive vacation.
What do you think? Should I close the accounts or keep them open? I’d love to hear your thoughts.