Do's and Don'ts When Closing Old Accounts

/ BY / Credit 101

If you have multiple credit card accounts you don't use, you may be considering closing them. Closing old credit card accounts can be helpful in a number of ways, but it can actually be harmful to your credit score as well.

Closing old accounts can lower your score by potentially shortening the length of your credit history. It can also decrease your available credit, which also affects your overall score. However, if you're trying to get your credit or spending under control, closing old accounts can help remove temptation and keep you from getting further into debt.

If you're considering closing old accounts, keep the following do's and don'ts in mind:

DO understand how it's going to affect your credit.
The first thing you'll want to determine is whether or not cancelling your card will affect your credit. In some cases, it won't. For example, if you opened your first credit card 10 years ago and you want to cancel a card that's 7 years old, your 10-year history won't be affected. However, if you have a 10-year-old account and that was your sole source of credit for 3 years, canceling that account will shorten your history by 3 years. To learn more about how your credit is calculated, visit My FICO for a breakdown of what determines your Fico score.

DO cancel cards with smaller limits.
If you do decide to cancel a card, opt for one that has a smaller limit, which won't have as much of a negative impact on your available credit line. For example, if you cancel a card with no balance that has a limit of $3,000, you're lowering your available credit by $3,000 without paying down any of your outstanding debt, pushing you closer to your credit limit and lowering your score.

DO consider your financial goals.
Before you close any accounts, consider your financial goals for the next year or so. If you plan on financing a car, home, or obtaining any kind of line of credit, make sure you wait at least six months to apply after canceling your card.

DO cancel cards with terms you don't agree with.
It's not uncommon for credit cards to change terms by either upping interest rates or lowering credit limits. If your card's terms have changed and the company will not negotiate with you, you can decline the new terms and have your account closed. You will still have to pay off the balance, but you will be doing it on your old terms.

DON'T cancel your only card.
Credit cards often get a bad rap, but they are useful, particularly in emergencies. Instead of cancelling all of your credit cards, keep one (preferably with the lowest balance and lowest interest rate) and make sure you never charge more than 30% of the balance.

DON'T close your card with the best terms.
Many credit cards offer perks. If you have a credit card with a low interest rate or certain benefits, like cash back rewards or frequent flier miles, hang onto it and continue to receive the benefits of it.

DON'T cancel all your old cards at once.
If you do decide to cancel multiple accounts, wait a few months between each cancellation. A flurry of activity on your credit report all at once can have a negative impact, so take your time when closing out accounts.

Cancelling old accounts can help you simplify your finances and remove temptation to overspend, but it can also potentially lower your credit score. Following these do's and don'ts of closing accounts will help minimize the impact on your credit.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.