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Credit Cards: Cancel at Your Own Risk
Here's a brief but interesting column about the potential harm to your credit score when you cancel an unwanted credit card. It's alarming to realize that walking away from a poor consumer product -- for example, a credit card that relies on abusive practices and deception -- can negatively impact your ability to secure a car loan, mortgage or so many other aspects of your life. The system really is stacked against the consumer. I wonder what products and practices credit lenders would offer if they were the ones subject to an overarching rating system rather than (or in addition to) the consumer?
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If a credit card really is a bad deal, then by all means you should cancel it and either look for a better deal or do without. Too many people are far too obsessed about their FICO score. Well, losing a few points of that score (which you will regain in a fairly short period of time if you keep yourself out of trouble otherwise) is not going to be a life or death matter. The only caution would be if you are thinking of getting a mortgage, car loan or a refi deal on your existing mortgage. Then I'd wait until afterward and let your FICO score lose a few points when it won't matter.
December 16, 2006 5:10 PM | Reply | Permalink
In the long term, your credit score won't mean much if you steer clear of loans and accumulate net worth. With the amount of money lost on interest and loans, one could become wealthy if they kept it all. Also, if you want to buy a home and you have enough cash to put down a very large down payment, your credit score won't be so important. The lender will be secure enough with the amount of equity in the property. Then if you pay off that mortgage as quick as possible, you'll save tens if not hundreds of thousands of dollars in interest.
Lose a few points on a FICO score in exchange for long term security? What a small price to pay.
Jim Anderson
The Truth About Credit
December 17, 2006 5:24 PM | Reply | Permalink