Creditnet News Story

Have other credit cards lined up if optioning out of old accounts

Monday, November 30, 2009

By Sam Lee

Doing so will keep available credit up, which affects a credit score.

Many card companies are changing people from fixed to variable rates as a result of new legislation from the government.

New regulations from the Credit Card Accountability, Responsibility and Disclosure Act will keep credit card companies from raising fixed interest rates on credit cards arbitrarily. However, in a recent column for New Jersey's Jersey Journal, Alky Danikas noted that the new rules do not apply to variable-rate cards.

As a result, banks are switching people to variable-rate cards. Danikas, a lecturer at St. Peter's College, noted that banks do allow people to opt out of the rate changes. However, to do so they will have to eventually close the account after paying off their old balance.

If consumers do opt out, Danikas suggests they make sure they have other credit cards lined up to take the place of their old accounts.

"This will keep your total credit availability relative to outstanding balances the same, thereby having a lesser chance of adversely affecting your credit score," Danikas wrote.

However, there is a catch regarding applying for new credit and how it affects a credit score. Applying for additional credit cards could reduce a person's credit score for a time. Closing old accounts could also decrease a person's credit history, thereby affecting their score.