Is it true that closing a credit card account can negatively impact your credit?

Question

I have some credit card accounts I would like to pay off and close for good. I have heard that this could have a negative impact on my credit. Is that true? If so, what is the best way to eliminate some this credit cards?

Answer 1

I totally agree with rlanicek.

Not only with his advice but also in not believing so many people can answer this question when it seems that they don't have a clue that closing an account will hurt your credit.

I would suggest doing as he recommended, since he said it best.

The only other thing that I can offer is if any of your cards have a yearly fee or high interest, call the credit card company request that they drop the fee and lower your interest.

The only time you should close accounts is if they do have a fee that the company will not drop. And, the account closure should not happen within 6 to 12 months of making a major purchase.
Plus, it would be a good idea to replace that card "before" you cancel it.
If the card is new, then closing it won't hurt that bad in losing history, but you will be losing utilization which could result in a small ding.

Having credit cards does not mean you have to run out every day and make charges. Stick them in a drawer, pull them out about every 6 months or so and make a small purchase to keep them active. Buy a hamburger or some gas then stick the card back in the drawer. Then pay the statement in full.

Answer 2

It depends. The problem with this is that if you had a credit card that you had for a very long time and you cancel it, it will take a small negitive hit on your rating due to the loss of the history of that credit card. If your credit cards have credit limits, unlike AMEX, and you cancel that credit card your credit to debt ratio will get worse in which case lower your credit rating. Overall, if you are not planning to buy a house anytime soon, within the next year, you should be ok to cancel the credit cards and you will be fine. If you are then I would wait until after the purchase to cancel.

Answer 3

Look, this is your life. If you want to close the credit cards and keep just one, do that. I did. I have one credit card. It enables me to not live beyond my means. I set the credit limit I wanted. I have been told to make more credit. I tell these people, hell no. I don't need anymore than I have right now which is the credit card and a mortgage. You be in control. Don't get caught up in that game with too many credit cards.

Answer 4

No. It will benifit you when applying for credit. On of the factors that is looked at when scoring is the credit you have available to you. If you have too much credit available to you it's effects you in a negative way, by means of your score. If you pay off and close some of your accounts and keep a select few, it looks like you are a responsible person and a better risk.

Answer 5

I can't believe some of these answers. I've been in the mortgage/finance indutry over seven years. Trust me--closing credit card accounts does not improve your credit. Quite the opposite: closing current accounts can decrease your credit score. One of the factors used in calculating your score is credit depth--how long you've had established credit. Let's say you have two accounts: one Sears account you opened ten years ago; and a Kohl's credit account you opened one year ago. While they are both open, you have ten years of credit depth. Close the Sears account and now you only have one year of credit depth.

Leave accounts open, even with a zero balance. Concentrate on paying down your cards with balances to 20% of the credit limit. Make your payments on time.

Answer 6

I agree with rlanicek, as well. Closing established credit accounts will damage your credit, as this reduces your available credit. Having $5000 in available credit and $1250 in debt looks a lot better for you than $2000 in available credit and $1250 in debt. Want to make things look better for you? Pay your bill in full every month to avoid debt and those pesky interest rates. Have a little problem with spending? Freeze some of your credit cards.

Answer 7

No! Absolutely not true! Especially if you are trying to buy a home or get a loan....closing credit card accounts decreases your debt to income ratio- even if a credit card has a 0 balance, the opportunity to use them and charge up a balance is still there. Closing accounts is a really good idea!

Answer 8

No. There is a myth that in order to obtain a good credit standing one must have a credit card. The truth is that having extensive credit card debt can ruin your credit. Pay your remaining balance and then cut up the card.

Answer 9

It is true that closing your account won't directly affect your credit, however if that account is the longest standing account in your possession then you could eventually hurt yourself by closing it. Banks like to see long established credit histories as it is part of your score. If you close your longest standing account and leave newer ones open then it could make your credit profile seem shorter.

Answer 10

it's a ruse by credit card companies to make people believe that. after all, they only make money on people who don't or can't pay off their entire balances in one shot.

what is true, ironically, is that you have to have some sort of a credit payment arrangement to establish your "credit history" on some big brother database somewhere, and lenders often won't lend you anything if they don't see any history for you.

if you can eliminate as many cards as you can forever, then do it now! in my experience i only use one card for car rentals and another for everything else, and i pay off the balances every month. other than that i'm on the cash economy, and it's a great feeling of freedom.