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Will Closing Credit Card Accounts Hurt My Credit Score?

There are many consumers holding too many credit cards. This may be because they’ve signed up for new cards for the offers or they’ve accumulated credit card debt and opened a few additional ones to survive. Whatever the case, this may be the year to consider closing a few accounts. This can be achieved, but act with caution.

close-credit-cardMonitor your credit utilization ratio
This ratio measures your total credit balance across all cards divided by the total credit limit.  For instance, if you have a $3,000 credit card balance on a Visa with a limit of $5,000; a $2,000 balance on a MasterCard with a limit of $10,000, then your credit utilization ratio would be $3,000 + $2,000 divided by $5,000 + $10,000 or $5,000/15,000=33.33%. Ideally, you should try to keep balances below 30% of your credit limit.

Should I close my credit cards with zero balances?
Technically, you could close credit cards with zero balances. However, there could be a consequence to your credit score depending on the credit limits on those cards as well as the debt balances on the cards you are keeping open. We’re specifically referring to your credit utilization ratio as discussed above. The reason being is that when you close a credit card account, your total available credit decreases and your credit utilization ratio increases. You can offset the negative impact to your credit utilization ratio by requesting an increase in credit for the cards that you are keeping open.

Another factor to consider is whether or not the credit cards have annual fees. If not, then it’s probably best to keep them open until you pay down the remaining credit card debt.

What about credit cards with a long history?
Another point to consider is that the age of your credit card accounts is valuable. Closing a credit card with a longer history than a shorter one can be very hurtful to your score.

It is also important to understand that closing a credit card account doesn’t mean that your balance goes away too. The balance remains on your credit card account until it is paid off.

More credit card questions? Browse answers or ask your personal finance questions online.

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