Five Considerations to Keep in Mind When Closing Accounts
With the interest rate hikes that have affected thousands of consumers across the United States, many consumers are considering closing credit card accounts as a means to avoid these higher fees, and to keep their credit under control. However, closing a credit card account should never be a rash decision – you need to take into account several factors when making the choice. In some cases, closing a credit card account may do your credit more harm than good. The following are five issues to think about when dealing with a credit card account and whether or not you should close it.
1. The Age of the Account – if the credit card is one of your oldest credit card accounts, closing it will erase much of your payment history. Creditors typically place a high value on the length of time that an account has been opened, so if you shorten your credit history, you may damage your credit score.
2. The Balance of the Account – if the account is currently carrying a balance, don’t close it. Pay off the account first, and then close it. When you close an account, the available balance is shown as $0, so if you close an account that has a balance remaining, it will appear that you have maxed out your credit card – a sure way to lower your credit score.
3. The Terms of the Account – compare the terms of the account you are thinking of closing to the terms on your other cards. If the account has better terms than some of your other cards, you may want to reconsider closing the account.
4. The Balance of Other Credit Card Accounts – if your other credit cards are carrying a high balance, closing your credit card account may damage your available credit ratios, which in turn will result in a lower credit score.
5. The Number of Other Credit Card Accounts – never close your only credit card account. Having a mix of different types of credit is an important part of your credit score. If you need a card with better terms, shop around until you find one that suits your needs better, and transfer your balances, rather than close out the account.
Once you’ve made the decision to close a credit card account, do so formally – write a letter to the company asking for the account to be closed. In addition, make certain to request a letter stating that the account is being closed in good standing. This can be important for your records in case you need to put a statement on your credit report explaining the account’s closure. Additionally, be certain to destroy the old cards, including cards that others may have had as authorized users of the account. This will minimize the chance of identity theft, and will avoid any inadvertent attempt to use the card in the future. Closing a credit card account can be a wise move, but only if you make certain that it won’t harm your ability to get new credit in the future.