When Should You Close a Credit Card Account?

A credit card account should only be closed under certain conditions. You should never completely close out a particular line of credit, such as a Visa account, and consider the implications of closing out a card as it applies your credit or Paydex score. Additionally, older accounts may be worth paying a higher rate, because it adds more to your available credit rating. In short, don't cancel any credit cards until you have carefully reviewed your options.

How Many Credit Cards?

Never close out your only credit card account unless there is absolutely no other alternative. A better idea is to maintain at least one card with several different credit vendors. For private credit, avoid having too many cards of the same type, but a business should strive to maximize the amount of credit it has available. In both cases, mixed accounts are good, meaning that multiple sources of credit are preferred to only having one or two.

Consider Other Credit Card balances

Compare your credit card accounts before you cancel a card. Make sure that canceling one card does not push others to their straining points. While it may look like a good move to cancel a card with a low balance, the truth of credit scoring is that closing a lower balance card can have unpleasant results, and reduce your net credit worth. In some cases, closing an inactive card can increase your net worth, but doing the same with an active card could have the opposite effect.

Age of the Account

The older credit card accounts get, the more weight they carry with credit scoring institutions. In terms of credit card accounting, if you must close an account, consider closing a new account over an older one. Take the age of the account into consideration, as older credit accounts display a long-standing financial responsibility that speaks volumes.

Don't Close Cards with Balances

When closing credit card accounts, be careful of closing an account with a balance remaining. To credit agencies, closing a card with a balance owed may look like a card that was maxed out and then canceled by the credit vendor. Even if you did everything else right, this mistake could cost your credit score dearly. A better idea, if possible, is to reduce the balance to zero and let it remain idle for 3 to 6 months, and then close the account.

Notes on Closed Credit Cards

Even after it has been canceled, keep track of your credit card account number. If future disputes emerge, you may need to know this number. Identity theft has become a very real issue in the credit world, and you have to stay continually vigilant to make sure that you don't become a victim. Save all of your paperwork on closed credit cards, and check your credit standing regularly to make sure that there are no unauthorized charges placed against it. Unless you must, don't close out a credit account at all, but when that is the only option, choose which account to close carefully.

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