Should I Close My Accounts or Leave Them Open?

Lucie* wrote me with a question I receive often from consumers:

If you have paid off a credit card should you ask the company to close the account or should you leave it open? Will it affect your credit rating if you close it out?

Lucie may be worried that having too many open and available credit card accounts hurts her credit. In fact, it’s one of the top reasons consumers file disputes with the credit bureaus. But before you close those old accounts, think twice. In fact, Fair Isaac, creator of the popular FICO credit scores you’ve probably heard of, says that closing old accounts can hurt your credit, but can’t help it. Here’s why:

First of all, most people close their oldest accounts. But when you do that, those accounts may drop off your credit report, making it seem like you have a shorter credit history than before. With credit reports, an older credit history is better.

Another important factor in your credit score is how much you’re using your available credit on your revolving accounts like credit cards. If you carry balances, or use your cards frequently to earn rewards or rebates, closing extra accounts can make it appear that you are closer to your credit limits – and this can hurt your credit score, even if you pay on time. Truth is, you probably don’t have to worry about having too much available credit as far as your FICO score is concerned.

Finally, closing accounts can also affect a positive mix of credit references.

Obviously, it’s OK to close joint accounts if you are worried about a cosigner or ex running up bills. A hefty annual fee is another reason to close an account. And of course you want to close accounts if you are a victim of credit fraud or identity theft. Otherwise, if you want to close out old accounts, start with more recent ones, leave the oldest one open, and close retail cards before you close major credit cards.

And Lucie, don't get too stressed out here. If it's just one account, and you really don't want to keep it open, closing it shouldn't have too much of an effect on your credit score.

*I always change the name of those who submit questions to protect their privacy.

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Welcome to Gerri Detweiler's Consumer Alerts blog!

I have found that some of the subscribers to my consumer alerts are not receiving the email I've been sending. With my subjects being debt, credit, mortgages and other topics that often top the list for spam, I'm not surprised! So I'll start publishing my consumer alerts here, as a central place for updates.

I also love to answer consumer's credit questions. So send them in and I will post the answers here as soon as I can. Feel free to submit your question to me on my site at UltimateCredit.com or by posting it as a comment to this post.