Should I close my credit account with very? - HotUKDeals
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Should I close my credit account with very?

hero9989 Avatar
3y, 8m agoPosted 3 years, 8 months ago
Ok, so I bought something from Very a couple of years ago and apparently in doing so I opened a credit account. I didn't even know this account had been created but I just did a credit check and there it is! Should I close it? How will it affect my credit rating if I do?

Thanks in advance.
hero9989 Avatar
3y, 8m agoPosted 3 years, 8 months ago
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#1
Your credit card issuers may target your inactive account for reduced limits or closure, though at what point they take action will vary. The fact is, a dormant account makes zero money for the issuer.

An account closure can alter your utilization, which is your balance-to-limit ratio on revolving accounts. Shutting down an account with a zero balance removes the credit limit from this calculation, which can cause an increase in utilization. For example, let's say you have two credit cards, each with a £5,000 limit. One you never use, and the other has a £3,000 balance. If you close the dormant account, your overall utilization would go from 30 percent to 60 percent.

Because utilization is a heavily weighted factor in credit scoring models, a surge in this ratio can push the score down. If you paid down other balances or already had a low utilization ratio, you can minimize the impact.
#2
I bought something from very for the first time a few weeks ago and unwittingly opened an account despite paying for the item direct from by bank account by debit card. I'm not intending to buy anything further from them. I'm just going to let the account sit there with a nil balance until they contact me to close it. It won't affect your credit rating with a nil balance only if your account balance is high and you are in arrears.
If it's troubling you then try and close the account.
#3
It depends on if you may use Very again. MrBeanzy has pointed out one aspect of credit review that organisations can and do use. Another and probably more important aspect that they use if income to credit availability.

If you earn say £20,000 a year then credit companies work out a maximum threshold for total credit that you should have available to you. This figure is a complex calculation based on a number of other factors including your credit rating and varies in how it is worked out from one company to another. This is due to the way companies are structured towards risk and the reason why with one lender you might be approved for a card and another one flat out turned you down.

So after all of that, lets say that the credit company you are applying to feel that with all your data that you would be eligible to have a total of £5000 in credit limits.

If you have one card with a £4000 credit limit already elsewhere on other cardsand come to this credit company and apply for a further card then the most they will give you in credit is £1000. If you went to them and in the first place had £5000 of credit elsewhere they may just decline you or you would get a useless limit of say £250.

The best advice to the situation is if you have no use for it close it, if you may use it in the near future keep it open but consider reducing the limit to a figure that would be the most you might use it for.
#4
Keep it open. What MrBeanzy said is spot on.
If very are reporting your zero balance and credit limit every month to the CRAs it will improve your credit utilisation ratio which makes up for about 30% of your score.
Closing unused credit cards and accounts adversely affects your credit rating to a degree unless you replace account with one with a similar limit.
You may find you may need to make the odd purchase every few months to keep account open but it may be worth it if you don't have many other credit accounts or have high balances.


Edited By: callum84 on Apr 08, 2013 16:34

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