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Will closing your credit cards hurt your credit score?

You’ve finally paid off a credit card and now you want to decrease the number of cards you own.  Before you officially close it out, consider what action is best for you to take to maintain a good credit score.

Do you really need to cancel your credit card or do you simply want to put it away to avoid spending temptation?

Your credit score is determined by five basic elements, each representing a specific portion of your credit score:

  1. Your payment history – This reflects how consistent you have been in paying off your creditors. This also helps lenders determine how “accountable” you are to meet your debt obligations. Your payment history accounts for 35 percent of your credit score, thus having the greatest effect on it.

  2. How much of your available credit you use – FICO views people who max out their credit limit as borrowers who cannot manage their debt well.

  3. Length of credit history – How long you have had each credit line affects your credit score.

  4. New credit – If you recently applied for a new credit card, mortgage, or other loan, it will be reflected in your score.

  5. The different types of credit you have (i.e. credit card debt, student loans, mortgage, car loan, etc.)

To help you determine which cards to leave open and which to close, follow these Do’s and Don’ts:

  • DO consider closing a newer credit card if you currently own multiple cards. Closing your new credit card that has no balance on it should not affect your credit score as much since it has a shorter history.

  • DON’T close an old credit card that you have used many times, as length of history on your credit report accounts for 15 percent of your credit score.

  • DO keep your credit card open if it is the only one you have since your credit is calculated in part based on how many different types you own.

  • DON’T close the cards with low interest rates that offer rewards on your spending.

  • DO close a card if the terms of your credit change unfavorably.

  • DON’T close a credit card that has an outstanding balance on it because it will appear as if it has been maxed out.

If you do decide to close out your credit card, consider these steps to ensure that it is done properly.

  1. Redeem ALL of your rewards before you close the card.

  2. Pay down your balance in full and make sure your account distinctly reflects $0 owed before you close it out. It may take several days for this to be reflected on your account; when it does, print a copy and save it for your records with the date and $0 balance shown on the document.

  3. Call the credit card company to process the close and request a written confirmation either sent to you via email or by regular mail. Take notes on who you spoke to, the date in which you called and requested the cancellation, and the reference number of your phone call. You can also write them a letter detailing your request to cancel.

  4. It may take several weeks or months for the closure to occur; continue to check back regularly to make sure your request has been fully processed.

Keep in mind: Just because you close the account doesn’t mean the credit history goes away.

 According to the Fair Credit Reporting Act, negative reports such as late payments and other delinquencies stay on your credit report for 7 years before dropping off. For positive history, it can stay on your report for 10 years starting from the date you close the card.

Closing your credit card account may affect your credit score differently than someone else’s. Each person’s credit history is unique; thus, one person closing an older account can represent a higher risk than it would for another person.

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