I will admit right off the bat that a lot of people with credit problems will disagree with me on this one, in that they think the best thing to do with a credit card account is to close it immediately when you are done paying it off. And while it can be a psychological boost to your financial state of mind, it could also be hurting your credit score. The reason I know this? I learned the hard way – back when I started paying off my credit card debt, I would close any account that I had finished paying on…even if it was an account that I had had for a very long time. And although my credit card debt was declining, so was my credit score – seems that they don’t like to see long term accounts closed, which was what I was doing. Closing the accounts I had for a long time while keeping open the more “recent” accounts (which I was doing) led to a pretty big drop in my overall credit score. I didn’t realize this was a problem until I started talking to people about why this was happening and then I immediately stopped closing accounts. The end result is that the credit cards that I do have (other than my newish American Express business card), I have had for a while now – some of them dating back to 1995. And although I don’t use them anymore and they sit in our safe, having them available to me and having the extra credit available looks good on my credit score.
The reason that this is important to mention is because I would not want anyone to hurt their credit score any more than they already have by being in debt. Getting out of debt (credit card, especially) is one of, if not THE most, important financial steps you can take to get your financial house in order. And working so hard to get rid of the debt and then having your credit score drop because of your closing of accounts is not a good feeling! Closing an account could mean that your debt to available credit ration could be way off, making your debt look even higher than it really might be. Also, by closing accounts you no longer use (especially older accounts), you can make your credit history look pretty short – not a good thing for keeping that score up.
I learned the hard way by just closing accounts when I was done with them – and it hurt my credit score. And although I do completely understand that closing an account does help you psychologically, you have to be careful which accounts you close and which ones you leave open. Closing the wrong ones can negatively impact your score, which is the exact opposite of what you are trying to do. So learn from me – don’t close credit accounts unless you have to but rather just stop using them, put them away in a safe place, bury them in the backyard. The exception would be any account that you will never use again and that charges an annual fee…I would consider closing them for sure!