Effects of Closing Credit Card Accounts

Many consumers close credit cards when they feel that it is impossible to catch up with the payments. Contrary to popular belief, this usually hurts credit scores. It is best to refrain from closing the following credit cards:

• Your one and only credit card. Your credit score reflects the different kinds of credit you have. Therefore, having a credit card will be beneficial to you. If you have never had one, creditors may turn you down because of lack of experience.
• Your oldest account. If you close your oldest credit card account, you will be shortening your credit history. Lenders think that short credit history is risky. You might not see a drop in your score immediately, but you might see the difference in ten years when the card is removed from your credit report.
• The credit card you have with available credit. Closing this will increase credit utilization and decrease total available credit.
• The card with the best terms. Keep the card with the low interest rate, no annual fee, and perks.
• The card with a balance. When you close a credit card with a balance, the total available credit goes down to $0. It appears as if you have maxed out.

While closing these cards may hurt your credit score, it is fine to close a newer card that you do not want to use any longer, as long as the card does not have a balance and you own other cards. Another time that it is fine to close a credit card is under the advice of a creditor in the case of identity theft. If you do this, make sure that you request written confirmation from the card issuer that the account closed in good standing.