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I was young and stupid and opened up a Best Buy credit card 5 years ago. I bought a new laptop and also a lot more stuff during these 5 years. I have bought over 10,000 dollars worth of stuff and paid it all off today. The interest rate on the card is 24.something percent.

Due to personal financial reasons, I was not able to take advantage of low rate offers from Best Buy on stuff I bought on the card and ended up paying a whole bunch of money as interest.

I want to close this credit card for several reasons - - It doesn't have a Mastercard/Visa/etc logo on it so I can only use it at Best Buy. - The interest rate is ridiculously high. - I spend more money because I get enticed into offers that come with this card. But I do not want to spend any more money than I can afford. - I will have to pay annual maintenance fee even if I don't use this card.

My question is, if I close this card which has a 4000 dollar credit limit on it, will it affect my credit score or credit history? Does it make sense for me to keep it open or just close it permanently? Will my total credit limit go down as a result as this card is not offered by a major credit card provider?

Any help is appreciated!

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3 Answers 3

up vote 10 down vote accepted

There is no harm in keeping the card open as long as there are no annual fees attached to the card and you have the discipline to not use it (for reasons I will explain in a moment). That being said, the affects of closing the card aren't as drastic as Chad eluded to either. I'll attempt to offer some solid clarification.

For starters, "retail cards" (store cards) are generally not that well regarded by the FICO scoring system as it prefers credit cards over retail cards. That being said, this type of credit you have only makes up 10% of your score so not a significant portion (and you'll improve this by transitioning to a credit card if you already haven't).

The only immediate impact you can have as a result of closing this card is in an area called utilization, which accounts for 30% of your score. The important question becomes how much of your total credit is wrapped up in this $4K limit? Also, how much of a balance do you typically carry on your other cards in proportion to this total aggregated limit? The FICO scoring model prefers you to keep your utilization under 10%. If your utilization will still be under 10% after closing this account your report will have no impact whatsoever in the immediate term.

The account will still report positive information on your report for 10 years, helping the 35% payment history category, and will help your Average Age of Accounts, which is 15% of your score, during the entire period. If you open a new card around the same time to replace this card it will age up while this card ages down causing a net neutral impact on your report.

So, basically, the answer to your question is "it depends." If your utilization number won't skyrocket your report won't be negatively impacted and you should close the account without a second thought. If your utilization will be impacted severely I would recommend you open a new account at a credit union, as MrCrister suggested, or request a Credit Line Increase on an existing account that you intend to keep.

I recommend you read the information from Fair Issac regarding the FICO scoring system that most lenders use. There are a lot of misconceptions about what impacts your score.

Scoring breakdown for reference:

FICO Score Breakdown

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+1 Nice. I have heard that store cards might report the balance as the limit thereby screwing up the ratios. Clearly not all cards do this, but have you heard of such things? –  MrChrister Sep 7 '12 at 19:28
    
@FrazellThomas could you explain how replacing this card with another card would help, or even have a nuetral impact on the length of credit history? MyFico seems to imply that the longer you're credit history the better and the lower the average age of your accounts is bad. So if you close an old account and open a new account the average length your accounts are opened is lower, so would n't that negatively impact your score. IOW isnt it important to have accounts opened the longer the better (assuming you are using them and paying them off)? –  n00b Feb 4 '13 at 16:16

(Chad has a very reasonable answer, but my opinion is different. The technical answer he provided is good for me. I dispute the value of a store card on your credit report whatsoever, but I think it varies from card to card.)

Get rid of that card! While we can calculate the numbers and worry about your credit score, the fact that you said it entices you to spend more than you would otherwise means you need to get rid of that card.

Try and get a credit union to give you a real credit card but even if that doesn't pan out, dump that card and remove the weak spot.

(By the way, I speak from a sympathetic perspective. I have done similar things in the past and I love visiting places like Best Buy and shopping just to have it. You brought it up which makes me assume you have some buyers remorse from time to time. Get rid of the trouble.)

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The best buy card is a bank card and it reports as such (as opposed to a sears or JCP store card). I agree he should get rid of the card. But the question was will it have an impact on the score. So that is how I answered. –  user4127 Sep 12 '12 at 19:23
    
Well since the Best Buy card reports as a bank card, my +1 on your answer stands. –  MrChrister Sep 12 '12 at 19:27

This is an open account in good standing with the creditor. So closing the account will remove the bump you get from having the account in good stead. So it will have an immediate effect of slightly reducing your credit score. But the effect is minor and would not expect that it would cause you to be rejected for credit that you would qualify for if it were open. The positives out weigh the negatives for closing this account. Especially if you are not disciplined enough to use it responsibly. Please do not take that as a slight I give you credit for recognizing this.

If you do not replace the account with another credit line (like car or home loan) then your credit score will decrease over time. This is a natural atrophy designed into the system. The score is designed to measure your ability to manage credit. If you have none and have not had any for some time then your score will naturally be lower. But if you have an active loan or line of credit elsewhere then you would not have this problem.

The only time I can see keeping this card is if it is your only good credit on an otherwise poor credit report and you are trying to rebuild your credit. If you have significant of slow pay from utilities and collections but your best buy account has always been in good standing then I would keep it open. I would use it to buy something every other month to keep it active. Rebuilding bad credit is not easy. When you are doing it take every hand hold you can get and keep it solid.

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