By LaToya Irby. Credit/Debt Management Expert
Welcome to About.com's Credit/Debt Management site, led by your guide, LaToya Irby. LaToya has been the credit and debt management guide since 2007. Read more
Many consumers close credit cards after becoming what seems like too delinquent to catch up, because they're upset with the credit card issuer, or because they simply don't want the credit card anymore. It's important to know that closing a credit card won't make delinquencies go away and in some cases, closing a card could hurt your credit score more than it helps.
1. Don't close any credit card that still has a balance.
When you close a credit card with a balance, your total available credit and credit limit are reported as $0. Since you still have a balance on that credit card with no credit limit. it looks like you’ve maxed out. A maxed out credit card, or one that appears to be maxed out, can have a very negative impact on your credit score since your level of credit card debt, including your credit usage to available credit ratio. is 30% of your credit score .
2. Don't close your only credit card with available credit.
Closing out this card will decrease total available credit and, subsequently, increase your total credit utilization. Just like closing a credit card with a balance, closing one without a balance can also affect your credit score, because you've used up all the credit that's available to you.
3. Don't close your only credit card.
Since part of your credit score (10%) is based on the different types of credit you have. keeping a credit card in the mix will add points to your credit score.
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Leave your only credit card open to show that you have experience managing various types of credit accounts.
4. Don't close your oldest credit card account.
Closing out old credit cards shortens your credit history. Lenders tend to view borrowers with short credit histories as
riskier than borrowers with longer histories. Closing your oldest credit card won't impact your credit score immediately. But, once the credit card falls off your credit report several years down the road, you might see an unexpected credit score drop.
5. Don't close the credit card with the best terms.
Why let a good thing go? If you have a credit card with a low interest rate. no annual fee, and other perks like travel insurance or great rewards, keep it. A credit card that charges you less for making purchases is far better than one that charges you more.
When to Close a Credit Card
It’s ok to close a newer credit card that you no longer use as long as the card doesn't have a balance and you have other credit cards. Or, you might close a credit card that suddenly raises your interest rate or introduces an annual fee. Your credit card issuer will probably close the credit card for you if you decide to reject these new credit card terms. Finally, in identity theft and fraud situations. your creditors will advise you to close the credit card to keep the thief from damaging your credit even further.
Close Your Credit Card the Right Way
Always close a credit card by sending a written notice to the card issuer. You can call first to cancel your account, but always follow up with a letter confirming your desire to have the credit card closed. Follow up by making sure the credit card is reported as "Closed" on your credit report. It won't necessarily hurt your credit score if the credit card continues to be reported "Open," but double checking will ensure your card is indeed closed.
You should be just as selective about the credit cards you close as the ones you open. Before you pick up the phone to alert your creditor that you want to close your account, make sure it’s not going to affect your credit score in a negative way .