Will this affect my credit?
March 7, 2014 7:41 AM   Subscribe

I have near perfect credit. I only use my Discover card that I have rewards on and pay off the balance every month. I do have a credit card from a credit union that I never use. I just received a letter in the mail that stated that the credit union credit card is about to expire and won't be reissued due to inactivity. Will this affect my credit? If I don't care about the card, should I just let it "die"? Thanks
posted by kbbbo to Work & Money (10 answers total) 2 users marked this as a favorite
It won't hurt your credit to cancel a card you never use anyway, but one thing to consider is that many places do not take Discover, and you don't want to end up in a situation where you can't use a credit card if you need to. It might be worth keeping a backup just for that reason.
posted by something something at 7:47 AM on March 7, 2014 [6 favorites]

The two factors that matters here are your credit utilization ratio (the ratio of how much credit you use to how much credit you have) and average account age. After the credit union credit card expires, you will have less available credit, so your credit utilization ratio will increase. If this increase is from 1% to 2%, I wouldn't worry. If the increase is from 25% to 50%, I would worry. Similarly, if the credit union credit card is one of your oldest accounts, your average account age will decrease (bad for credit), but if it's one of your newer accounts, your average account age will increase (good for credit).

From my experience, a credit card issuer declining to renew a card doesn't affect your credit by itself. However, secondary factors like credit utilization ratio and average account age might have a small affect on your score.

As a non-topical comment, I've found that other credit cards offer more rewards than the Discover card does, and are much easier to use (accepted more places). If you want further details on this, feel free to memail me.
posted by saeculorum at 7:51 AM on March 7, 2014 [4 favorites]

It may affect it. Part of your credit score is made up of your credit history and how long you've held credit. So, for example, if the credit union card has been held for 7 years and the Discover has been held for 5 years, once that credit union card is canceled you're losing two years of history.

Another part of your score is also calculated by utilization which, as I learned when we were buying our home, is based on monthly utilization - even if you pay off the card in full every month, if you're using a significant amount of the available credit it's going to hurt your score. So you're going to be reducing your total available credit and your utilization rate will increase if the card is canceled.

(This is all based on reading personal finance information online and getting a copy of my credit report when we were getting approved for a mortgage. There seems to be a lot of voodoo tied up in credit scores.)
posted by backseatpilot at 7:51 AM on March 7, 2014

If the card is being shut down anyway maybe it's worth calling them now and cancelling the card yourself, making sure they note "card closed by consumer" on the credit report. That way you know exactly what's going on the credit report.
posted by JoeZydeco at 7:57 AM on March 7, 2014 [1 favorite]

Yep, if this is your longest held card, it can affect it. You might suddenly have a shortened credit history. If you are young and have good credit, credit history length can be a major factor bringing your score down from perfect.

I'd call and ask to have it continued. Have something small and recurring put on it, like your Netflix account. Set it up to be paid automatically, and don't worry about it again.

Mint Credit Monitor has a handy "what if" calculator. It's a bit of a rip off, but you can see what your score will likely look like if that card goes away.
posted by fontophilic at 8:10 AM on March 7, 2014 [2 favorites]

Yes, it can. The utilization topic that others have mentioned is important. Part of your credit score is calculated based on your debt/credit ratio. You don't carry a balance month-to-month, but your available credit limit will drop, meaning that unless you drop your monthly use of the Discover Card proportionately, your credit score might be damaged.

Personally, I'd keep it open and set up one bill/month to be automatically paid from that account. Then, I'd set it up to have the balance paid off automatically by the credit union a week or so later. This will effectively BOOST your score rather than hurt it because using the card regularly and paying it off consistently will likely get the credit union to increase your available credit limit after several months. This way, you don't add a penny to your expenses, but you boost your borrowing power and make your credit score even better. I do this with 2 cards. I never carry the cards with me, and the whole thing is automated so I don't have to think about it. Bills are paid on time and credit is built over time. Win-win!

You may not feel the need to boost your credit score, but consider that available unused credit serves as a safety net in times of emergency. Yes, the interest rates are high, so it's better to have your emergency fund in cash, but if you don't already have 3 months of expenses saved up for emergencies, cutting your access to credit isn't the wisest move.
posted by JanewayJunior at 9:49 AM on March 7, 2014 [1 favorite]

Why not just use it occasionally? I also agree, it's good to have a backup that's not Discover for emergencies.
posted by radioamy at 10:01 AM on March 7, 2014 [1 favorite]

It will likely impact your credit. How much is impossible to say. I would make a small purchase on it to keep it active.
posted by stoneweaver at 1:14 PM on March 7, 2014

A prominent financial adviser on the radio suggests using every credit card you own every six months, just to keep the account active for the reasons stated above. Even if you buy something for $5, it still helps your credit because your debt-to-credit ratio stays lower.
posted by tacodave at 2:17 PM on March 7, 2014 [1 favorite]

Another argument for keeping the credit union card active and in good standing: if you ever need to take out a loan for, say, a new car purchase, you will get much better rates from the CU than from the dealer. Having that credit card history with the CU will probably help them say "yes" to you.
posted by nacho fries at 3:03 PM on March 7, 2014

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