I have to admit. I cancelled a credit card last year. You know - I didn't really use my Saks Card (which I only got so that my sister could get 10% off her wedding dress).

But now, after getting the Schwab InvestFirst Visa Signature, my wife and I are considering cancelling our Citi Dividend Rewards Card since the cashback premium is only 2% for certain activities and 1% for everything else. Schwab offers 2% on everything.

But there's a holdup - the "credit score" purists, masters of FICO numerology - say don't cancel cards because it shortens your credit history. I really don't get this - credit cards are financial products but they are also consumer products. If I want to cancel a line of credit, which I carry at no cost, I should be able to without a future financial hit. I opt-out of free newsletters, I chose not to read junk mail, why can't I cancel my card?

A closed card should have no impact on my credit score, ability to get a new loan or get passed a potential landlord. If you disagree or violently agree, speak on.

You make a valid point Ari.

As you know, the two FICO score factors hurt by closing a card are "age of credit profile" and "utilization" of available credit. In this topsy-turvey credit environment, those factors are growing ever more questionable as indicators of creditworthiness. It's time for a serious rethinking of credit scoring models.

Completely agree - I actually also have the Citi Dividend Rewards Card - and have wanted to look elsewhere, but would rather switch out rather than add another card.

I don't see the logic behind my credit score getting dinged for closing an account that I've never missed a payment on or not paid in full each month (I've had the card for about 4-5 years).

I have an excellent credit score (how many 24 year old's can say that?) and am looking to purchase a home in the next 3-6 months. I'll wait until after I've locked into my mortgage before making a jump away from the Citi card.

If you cancel your credit cards, you need to contact the credit bureaus. Or, they may think your account was closed by the issuer. And, this could lower your credit score.

Hi Ari. You mention that you want to cancel your Citi Credit Card. This can be a mistake. If you cancel a credit card, then your overall total credit limit goes down, and your credit limit to loan ratio goes up, which then causes your credit score to go down. The best thing to do is just keep the Citi card open and don't use it, then it will continue to contibute to keeping your credit score high. There is an exception to this rule, however. If you were to have several different credit cards with Citi (or with Bank of America, as I did) then you can pick one of those cards from the same bank and COMBINE the credit limits of all the cards into one of the cards with a new higher total limit, and then cancel the other cards. This way your credit limit stays the same, and you decrease the number of open accounts that you have, which will actually raise your credit score. Good Luck.

Hi Paul. Please read my reply to Ari. In your case, it is also important to keep your credit card account open because of how long you have had it. In addition to the lower total credit limit issue (mentioned in my reply to Ari above), you would also get dinged for closing an older established account, and replacing it with a newer one. Five years plus is the Gold-Standard for longevity and will count for more points as far as your credit score goes. Cheers.

Ari

I agree with you that consumers shouldn't be held hostage. I can understand though why a potential lender may want to see someone who has had a longtrack record however with technology available I would have hoped that you could get a replacement card at Bank B to close an account at Bank A and the Bank A history would still be as relevant.

I agree, David.

"It's time for a serious rethinking of credit scoring models."

Aren't credit scores supposed to reflect YOUR behavior, and not the zany, irrational, and paranoid behavior of the banks? If you have always had good credit and a high credit score, should YOUR credit score be going down because the banks are having a meltdown, blaming good customers for problems that the banks themselves have caused with their poor judgement? Lowering people’s credit limits, and cancelling people’s credit cards (which lowers their total credit limit) is what is causing people's ratios and credit scores to go down, not anything that these good customers have done. Shouldn't credit reporting agencies specify whether or not a change in your credit score is due to YOUR actions, rather than to the actions of a bank over which you have no control? Maybe a law is needed requiring the credit reporting agencies to only report and include YOUR activities, and not allow the actions of these banks to screw-up your score.

Doug

You take a very reasoned approach to this topic and I think that you make a great deal of sense. The way the lenders view the data is unfortunately the rule of the game and they are adapting to new data and matrixes. In a time when people with great credit scores are going into stratgeic defaults and at a time when many bank's capital positions are less than perfect I think it is hard to fault the banks. Just as they may have been too generous and lenient in the past the pendulem will swing too far the other way.

I didnt know that if you close the credit card account you need to notify the credit bureau. Do you have more informatiojn on this please? Thank you

Nataliya Yakushev said:

I didnt know that if you close the credit card account you need to notify the credit bureau

However, the bureaus make reporting mistakes ALL THE TIME. It's worthwhile to check your reports from time to time for such inaccuracies, among other reasons. annualcreditreport.com lets you do this annually at no charge. If the reporting is wrong, then it may be worthwhile to "dispute" the account with the bureaus to get it corrected. Instructions for such disputes are available at the bureau web sites.