I came home a few weeks ago to an ominously large envelope from 1st Financial Bank, USA, the guarantor of my oldest credit card—too large to be the statement or those deplorable fee-heavy cash advance checks they send me. You may remember from my grousing a while back that 1FB was guilty of pretty much every shady tactic outlawed by the CARD Act that recently went into effect, and how happy I was to finally pay the card off. Well, know that they’ve been forced to stop double-cycle billing, roving due dates, and other money-making tactics, they have a new way of making money: annual fees.
The new annual fees? $25, $45 for limits over $1000. Although based on their wording, there’s no guarentee that they’ll charge you. In fact, when I called up to cancel, I was told
You know, your annual fee can be waived on a yearly basis, upon request. So, it sounds like they’re planning on making most of their money on the inattentive that never bother to call in.
I have no intentions of potentially paying $45 annually for a card to sit in my wallet virtually unused, nor bother with calling in yearly. The only reason I still have the card is that it is my oldest (by a year), and has the highest credit limit. Those two factors supposedly help my credit score out quite a bit. Especially the high limit, which accounts for over half of my available credit. I’ve seen first hand how a high debt-credit ratio can bring down your score, so I don’t relish the thought of halving my available credit (and doubling my current debt-credit ratio). But does the fact that it is my oldest card count? After all, even closed, it will remain on my record as a closed account for the next few years. And should I even be worrying about my credit score? After all, I’m working on getting out of debt, not taking more on. I have a newish car (2007), and with a paltry 20k miles on it to date, I’m sure I won’t be needing another one for quite a while. We decided that a mortgage isn’t in the cards any time soon—it’s cheaper to rent here in Utica, and we’re not sure we want to stay long-term anyhow. So, why do I even need an excellent score? The answer? I probably don’t.
So, I “rejected the change to my account,” which is their euphemism for “you won’t play our profit game, so we force you to tell us to close the account.” And then I waited anxiously for them to report to the credit bureaus to see how much my score was affected.
The Score Hit
I started out with a 769 TransUnion score, which is considered an excellent score by Credit Karma. That’s actually quite a change since this time last year, mostly due to paying off the 1FB account and bringing down my debt-credit ratio quite a bit. Since that ratio is what is going to take the biggest hit with this cancellation, it did have me a bit worried.
The resulting score: 761.
So, not much of a hit at all. But, despite my worry before closing, I’m now at peace: I have one fewer card to worry about losing/having stolen, and will have to spend that much less time reviewing and filing statements (1FB jumped on the paperless bandwagon a mere month before I closed the account). And, by the time I’m ready to apply for a mortgage, my debt-credit ratio will be ~0, so the score will be back up.
The moral of the story? In my situation, at least, the myth that closing your oldest credit card will severely effect your credit rating doesn’t seem to hold true. What does cause issues is the drop in debt-credit ratio from losing the available credit on the card. If you’re young, and have a pretty good history, there’s no good reason to not consider dropping your oldest card if the bank gives you reason. A slightly lower score is still better than paying a high annual fee for no rewards and no features.
I know 1FB USA isn’t the only bank out there that has started charging annual fees. Have you had any surprise changes to your accounts since the CARD Act went into effect?