Closing unused credit card accounts can affect your credit score

How closing unused credit card accounts can affect your credit score

Q: Martin B., …We have
heard, however, that closing accounts actually negatively impacts one’s credit
rating! We would greatly appreciate any information you might have (or where to
find information) regarding this matter.”



A: Craig Watts, a spokesman for Fair Isaac, inventor of the FICO credit score, says, “Cutting up or closing credit cards won’t help your score and in some situations it might lower your score, though not by a lot.”

One of many things that goes into a credit score is credit utilization, which is your outstanding debt divided by your credit limit.

If you close a credit account that has no balance, you are reducing your available credit and thus your credit utilization at least on paper.

For people who have no or low balances on their other credit cards “it’s not an issue.

People who have high balances (relative to their credit limits) need to be a little more careful” about what cards they choose to keep open, Watts says.

Greg McBride, a senior analyst with Bankrate.com, warns that “if these open lines of credit represent temptation, that needs to be the focus in terms of which cards you close out.

As to the best way to close a credit account, McBride says, “Do it after the balance has been paid off.

You can call first, especially if you are interested in a counteroffer (such as a lower rate).

Tell them you want it to show the account was closed at the consumer’s request on your credit report.

The next time you get a free copy of your credit report, check and make sure it is listed that way.”

It’s OK, but not necessary, to send the cut-up card.

Just make sure your written instructions include the account number.

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