One of our readers, Tim, had this question:

It is my understanding that if an American Express credit card holder were to file chapter 7 bankruptcy and the cardholder did not include their Amex card in the bankruptcy that Amex will continue the credit card relationship.

Are there any other credit card companies, that you know of, that do the same thing? Or do all of the Visa/Mastercard/Discover companies immediately cancel the credit card once chapter 7 is filed? Please let me know

Thanks for your question Tim. It really does depend on the credit card company’s policy.

This is one of those gray areas where Bankruptcy is concerned. Technically speaking, if you aren’t carrying a balance on your credit card, then it shouldn’t be listed as “Debt” and it’s fine to not include it in your bankruptcy. However bankruptcy laws vary from state to state so this is a question that you will absolutely need to ask your lawyer before you do it.

Now as far as credit card company policy, again, it just depends on the company. I wish I could give you a more specific answer. Credit card terms and conditions are liable to change at any time.

The best you can do is try. Keeping a good credit line through bankruptcy is a smart thing to do if you are able to. It is always possible that your credit card companies will cancel your cards once the bankruptcy goes through, but there is also a good chance that if you don’t owe them any money, they may never even know about your bankruptcy.

For our other readers out there who are interested in carrying credit cards through their bankruptcy:

If you owe a credit card company money, but you do not want to include the account in your bankruptcy so that you can keep it open, you can always attempt to re-affirm your debt.

Basically that means that you send in a written agreement to your credit card company stating that you do still intend to pay the account back. In some cases, credit card companies will allow you to do this, and they will knowingly keep your credit account open through your bankruptcy.

Again this is something that you will need to check with your lawyer about first, and your credit card company second.

Another reader, Victoria, had this question:

I have one too many credit cards. What can I do to get rid
of a few? Should I close them out completely or keep them open and just not use them?

Victoria,

Thanks for your question! From a credit score standpoint, it makes more sense to jut leave the your credit card accounts open. Any time you open or close a credit card your credit score takes a small hit.

Also, the length of time that you have had your credit cards also factors into your credit score.

If the credit card has a high yearly fee, or some other financial consideration that makes you want to close the account it is ok to do that. Just be sure that you give your credit score a few months to recover before you try to apply for any new loans.

If there are no high fees to deal with, or other financial considerations, then it is always best to leave your credit accounts open. In fact, having open lines of credit that you haven’t charged anything on looks very, very good to the credit bureaus. It can actually raise your credit score!

So feel free to put those cards back for emergencies, or cut them up and leave the account open – just to get the benefit of an improving credit rating.

If you have several cards that you really do want to close out, I suggest checking your credit score before and after closing a single account.

There are so many variables that go into your credit score that it’s impossible for me to tell you exactly what closing out an account will do to your score. That is the best way to check, and that way you will know if you want to continue closing accounts.

As a general rule of thumb, the longer you have had a credit account, the more it impacts your score. So if you’re thinking of closing out established accounts that you’ve had for a while – it really is better to leave them open!

And finally, Dan had this question for us:

If I pay my credit card before the deadline, more than the
minimum payment but less than the total, will that adversely
affect my credit rating?

Thanks for your question Dan!

As long as you make at least the minimum payment, on time, your credit score will not be adversely affected. Paying more than the minimum, but less than the total balance will not hurt your credit rating either. Extra payments work the same way.

What will hurt your credit rating are paying late, or charging more than 30% of your available balance.

If you really want to maximize your credit rating, be sure to pay down your total balances as much as possible.

Keeping the total balance on the card to no more than 20% of your available credit is one of the best ways to raise your credit score.

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This entry was posted on Monday, January 19th, 2009 at 14:08 and is filed under Debt Reduction FAQ, Reader's FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.