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Why Closing Your Credit Card Accounts Doesn’t Always Make Sense?

Posted on July 23, 2010

When the credit card chaos erupted in the last few years and people finally began to realize the damage they were doing to their credit scores by overextending their credit, many made the mistake of shutting down credit card accounts completely. It was thought that closing the accounts would end the temptations of spending more.

However, as people paid more attention to their credit histories and worked hard to repair their credit scores, they realized that closing their card accounts was a mistake. They had actually hurt their scores by taking away part of their credit histories and made credit repair harder.

Why You Should Leave Accounts Active

Just because you have a credit card account doesn’t mean you have to spend – but it does mean you have to pay off the account to keep it actively in good standing. If you are facing debt that is harming your credit score, you need to get serious about erasing your debts. It is the only way you can repair bad credit.

By closing too many card accounts, you end up dropping your credit score even lower than it is. Credit repairs will take longer because a large percentage of your credit score is calculated by using the length of time you have established credit. If you close your longest running account, you are wiping out a percentage of your credit history. By leaving the account open and paying down the balance, you will gradually see your credit score improve.

What If There Are Too Many Accounts?

If you have indulged in too many credit cards over the years, it is time to re-evaluate and make some decisions. Gather your credit card account information and see where you stand. There is certainly no reason to have twenty credit cards so you can make some cuts but only if you know what you are cutting. Find out the open date for each card. Don’t close out the longest opened accounts but do focus on paying those off. Cards you just recently opened but rarely used can be considered for permanent closing.

Since many people opened a credit card or store card on an impulse just to get a reward or a prize, there may be several cards that no longer even fit into your lifestyle. You can close these accounts but not all at the same time.

Never close an account that still maintains a balance. Pay off the debt in full before you consider closing the account. Maxing out your credit cards is damaging to your credit score because of the debt ratios you maintain with other accounts so make every effort to eliminate balances as fast as possible and definitely pay more than the minimum each month. Stop using them to purchase merchandise and leave them in your wallet, unless you are being charged an annual fee. Cancel cards that charge membership fees if you don’t plan on using them often.

How Many Cards Should I Keep?

Over time, weed out the cards you don’t use and close out the accounts. Do not close them all out in the same week or you can expect your credit score to dip. Evaluate which cards are beneficial to you. Keep one card with the best interest rate for regular use. Keep one card for emergency purposes only. Consider if any of your other cards have rewards programs that benefit you enough to keep. While the amount of credit cards you maintain depends on your own personal choices, needs, and financial situation, it can be good advice to keep just what you need.

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