Quick Answer: After bankruptcy falls off credit reports and credit scores improve, closing high-fee cards like Credit One and Fingerhut will temporarily lower credit scores due to reduced credit history length and available credit. The person should consider keeping the cards open with zero balances or upgrading to better products with the same issuers to maintain credit history.
Question:
Dear Steve,
About three years ago, I acquired three credit cards – two from Credit One Bank and one from Fingerhut.
Every weekday I read the enforcement actions, filings and fine print the outlets skip, and turn them into the one or two moves that actually improve your position — a rate worth moving for, a fee you can refuse, a deadline to beat before it costs you.
In the latest issue (Sep 11): You drive to the dealership to pick up the car. There is no car. There was never a car.
I write Your Money Actually most weekdays — actionable money information you will not find anywhere else, and the small decisions that compound. It is free, I sell nothing, and I take no money from any company I write about.
I only applied for these particular ones because I had a bankruptcy in 2011, wanted to build up my credit score again, and could not find any other companies who’d issue me one.
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I don’t like the idea of “secured” credit cards. However, I was well aware that the interest rates were outrageously high, and in the case of Credit One Bank, I cringed at paying a yearly fee.
Additionally, I knew Fingerhut often charged three times that of other retailers for their products.
However, I knew I would only use these cards if I had to, which has been the case. By the way, it’s been over ten years, so my bankruptcy has now been removed from my credit bureau reports.
Now, I want to cancel all of these cards. I have zero balances on them and do not want to pay the fees anymore. Now that my credit score has increased (although not quite back up to where I want it), I have requested several times that Credit One Bank stop charging me fees and lower the interest rates.
They refuse to do so. I’m also sick of the constant condescending, bordering on harassing emails, text messages, USPS letters, etc., I get from Fingerhut hounding me to buy their absurdly high-priced products.
However, as you know, if I cancel these cards, my credit score will take a big hit. Is there any way to avoid this if I cancel the cards?
Also, I already subscribe to your site, so I don’t need to be added.
Rachel
Answer:
Dear Rachel,
Thank you for already being a subscriber.
Damon Day and I recently did a podcast that seems almost spot on regarding your situation. If you get a chance, listen to the podcast below. A lot of good tips and lessons in the podcast for you.
Listen to the Podcast
I’m glad you are reaching out to me now. If I had a time machine, I would have jumped back to the day after your bankruptcy discharge, and we could have returned you to stellar credit a lot faster. There is no need to wait for bankruptcy to fall off a credit report before getting aggressive about rebuilding credit. See How to Easily Rebuild and Repair Your Credit After Bankruptcy. This strategy works everytime.
If you cancel all three cards, you will gut your score. So please don’t do that.
Store and retail cards like Fingerhut do nothing for you. Those you can certainly close. The Credit One Bank card has a lot of age on it now, and the length of your accounts is a significant factor in your credit score.
It sucks you are paying a hefty fee with Credit One Bank, but for now, it will be an investment in keeping your score up. A visit to the Credit One Bank website shows annual fees on cards from $0 to $99. Of course, the annual fee isn’t an issue if you are on a credit card that gives you rewards and perks you use. In your case, it’s a credit score boost.
Annual fees do not need to be avoided. For example, I have a credit card with a yearly fee of $495. That seems like a lot, and it is. However, I get so many perks, rewards, and free hotel stays that the fee ends up being free and I make money from having the card.
It’s too bad you “didn’t like the idea of a secured card” since it is such a brilliant way to rebuild credit.
By getting a secured card with a major credit card issuer like Capital One, Citibank, or Discover, you can move your way from a secured to an unsecured card and stay in the same bank.
Oh, and never use a debit card. It is less safe to use than a credit card and does nothing to build credit.
One place to research new credit cards is your mailbox. Keep your eye open for the offers you may be receiving. Those are often an indication of Main Street lenders willing to take a chance on you.
However, I’d avoid American Express. Yuck.
Dealing With Debt? Understanding your options is the first step. See how all your debt relief options compare — including ones most sites won’t tell you about. The Find Your Path quiz gives a recommendation based on your actual numbers, and the Scam-O-Meter checks any company’s complaint history before you sign. Federal Reserve research shows bankruptcy filers recover faster than those who don’t file.
Asked question about my Fingerhut and other cards.
Thank you Rachel for being a subscriber already. I just answered your question.