Closing creditcard

[abzin44]

Hi All,

Looking at settling all outstandings with my credit card and closing it for good. I know the "Just have financial discipline" speech but at some point I have to be honest with myself, I lack financial discipline in terms of Credit Cards, so this month I will pay it off and close it for good. I will be exhausting all my savings but it is what it is. Two questions from my side :

1) Will closing my card negatively affect my credit score

2) Will closing then re-opening with a lower limit R 500 max help?

3) Are there any beneficial reasons that you know of apart from credit score? I am on FNB

4) What else can I do to improve my credit score now that I will not have a credit card.

Please excuse if I sound clueless, looking for and will appreciate all advise. I recognise the importance of credit so will do all to improve.

 

[gracer]

@abzin44 I'd just set the limit to R500 and keep it open. I had mine on R500 for years, until I learned discipline, then just increased it to R4000 for serious emergencies where I need a few bucks. It works well, especially if you need that extra R1000 at the end of the month because your expenses were a little bit high in said month. It's also good for your credit score to keep it open.

 

[lotw]

@gracer I never thought of this. I'm in a similar situation as OP though significantly different. I became financially reckless for some time. Now that I have paid off all my debts, I have noticed the bank charges me almost R1K per month for my credit card i.e credit facility plus insurance. My limit is R100K. So I have been in a dilemna between totally closing the credit card account or significantly lowering the limit. I don't have significant savings.

 

[gracer]

@lotw Any limit over R5k is probably a bad idea for anyone. If you have a real emergency you can always increase it, but preferably don't make it higher than that. I bank for free because I've got the cheapest FNB account with ebucks. I'm basically saving the R1k/month that you're spending on fees. This builds a emergency fund after a year or two. Credit cards really shouldn't be handed out like sweets...

 

[lotw]

@gracer You are right. Thanks for the advice.

 

[robert1945]

@lotw That's bizarre. You should only be charged if you USE the credit facility... Or a nominal account fee.
I have a large limit, but pay nothing if I don't use it - eBucks pays the account fee.

 

[latuwr]

@abzin44 Your credit score is negatively impacted if you're constantly exhausting the full credit limit. I think if you're unable to pay your credit card bills, credit score should be the least of your worries (I say that with full sincerety). Close the card if that makes you comfortable. Stabilise your finances first before you're ready to take on debt. Using up your savings to pay the credit card bill is a huge red-flag. You're on the right track.

 

[samjakobs]

@abzin44 Good move on putting measures in place to avoid the credit card debt trap.

 

[iamtanner]

@abzin44 I can't even get a credit card to even start improving my credit score

 

[ulyss]

@iamtanner Open a cellphone contract and open a data contract. Those 2 alone will boost your credit score to 600ish in months

 

[iamtanner]

@ulyss That's what's funny, my credit score, according to ClearScore is 632 but I can't even get a clothing store account...

 

[ulyss]

@iamtanner Did you try opening it face to face? Or you doing so online?

 

[iamtanner]

@ulyss With the credit card or store account?

With the credit card, I've done it online only. With the store account, I've done it both in-person and online. No luck.

 

[ulyss]

@iamtanner I see

 

[airel]

@abzin44 1) It can but it depends on how many credit accounts you have. And you'd be surprised what counts as a credit account. A cell-phone contract for example.

2) It might but you can probably tell your provider to change the limit without having to close and reopen it (which would have fees). Although personally I think there's no shame in just opting out of credit cards if you're self aware enough to know they're not for you. Closing it is probably more responsible.

3) Main benefits of credit cards are easy liquidity, cheap transaction fees, help with credit score and loyalty system churning (which can be hard to get right). For certain transactions (online shopping, car rental) you'll need either a credit card or a debit card. So as long as you keep a debit card you should be fine.

4) Other credit accounts like insurance, cell phone contracts (they have to be in your name to count). Generally good financial behaviour.

Note the importance of a good credit score is kind of overblown. When you need a loan several things factor into the calculation, not just your credit score, and trying to build a good score might be costing you in other ways in the meantime. Just avoid having a bad credit score and otherwise be fiscally responsible. Don't take too much leverage, don't live pay-check to pay-check, etc. Bonus points if you accumulate assets like equities.

 

[blessed4dayz]

@abzin44 You can find a lot of professionals that can help on fiverr with your credit score . I had an outstanding experience with a few people there.Check them outfiverr and they did an amazing job.They have some great people there and you can see their past work. You can make an idea...and of course check their reviews from other customers which always helps. Good luck