Consumer Comeback Blog

Closing Credit Accounts and Your Credit Score

TransUnion, one of the three credit bureaus which make up a person’s credit score, provides these tips to consumers about how to appropriately close credit card accounts:

  • The right way: Before closing any accounts, consumers should first evaluate how many accounts they have, what they cost, how they are used, and how they may affect your credit score. Closing an account may save you money in annual fees, or reduce the risk of fraud on those accounts, but closing the wrong accounts could actually harm your credit score.

    A good mix of credit is important, and too many accounts of the same type can hurt a credit score. But remember, accounts that have been open for a long time, and those with high credit limits but low balances, may have a positive impact on a credit score.

    If the decision is made to close some accounts, start by looking at inactive accounts no longer in use. Don’t close all accounts. Consider keeping enough accounts open so the total balances on all open cards is less than 35% of the total credit limits.

    If controlling spending is a problem, designate one card for regular use and try to pay the balance in-full each month to maintain the credit score. Keep the other cards in a safe place for emergencies only.

  • The wrong way: Try not to close the oldest account, because it could potentially shorten a person’s active credit history. Don’t just throw away old cards and expect the accounts to close automatically. When closing an account, the correct way is to call or send a letter to the customer service department of the card issuer (not the credit reporting company).

    Don’t be tempted to cancel several accounts all at once. If the choice is made to cancel multiple credit accounts, space the closures over time to avoid this being viewed negatively by potential creditors.

    Avoid putting total balances on one card as while closing the other accounts. If the credit balance increases to above 35% of the available limit on that card, it could negatively affect one’s credit score.

    Keep monitoring credit reports for updates once the accounts are closed. Wait 30-60 days for the creditor to report the closed account and the credit reporting companies to update records. While the accounts and payment histories will stay on the credit report for seven or more years, they should be marked as “closed.”