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Friday, September 21, 2007

Closing Credit Cards

I have been doing a lot of research these past few days, trying to find information on the "right" way to close credit cards. And I have concluded that there isn't one right way. It all depends on your situation. My research did uncover certain elements of your credit report that you will need to take into account when deciding how to close your credit card accounts.

  • Credit History :
    • Definition : Measurement of how long you have had credit, starting with your first credit card or installment account (15% of credit score).
      • Dimples' Research Says: Closing one or more credit card does not disturb your credit history. Accounts will stay on your credit card for a 10 years after they are closed and during that time you will still retain that card's credit history.
  • Revolving Utilization (AKA balance to credit limit ratio):
    • Definition : Amount of your revolving credit limit that you are currently using (30% of credit score).
      • Dimples' Research Says : This is what you should really analyze when closing your credit card(s). As you close accounts, you lower the amount of your available credit. If you are not paying down your usage of that available credit (i.e. debt snowball), then your ratio will increase as you close off each credit card.

Dimples Do's and Don't of Closing a Credit Card

Do not close any card that still has a balance
Do request a zero balance letter prior to closing a card
Do not close your oldest card
Do not close your ONLY card
Do request written confirmation that the card was closed in good standing
Do send a written notice to close you account to your card issuer
Do not close all cards at once, try and space it out

(Wanna add one? Leave a comment and I will edit this to add yours in)



So based on the results of my research, the plan I currently have set in regards to closing my credit cards will take into account both factors. My six years of credit history will remain six years of credit history regardless if I close eight accounts that are no more than three years old. And I have it set up where I am closing my credit cards by credit limit, the card with the lowest credit limit going first.

Again this is based on MY credit card status, credit history, and future plans. To each his own. I am holding off buying a home at the current moment. I have made the mistake of trying to set a date on when to start this process back up when in actuality I should be going by my financial picture. So with that said, if my plan does wind up hurting my score then I will invest the time and effort needed to get it back up to where I need it to be.


Resources:

How Lenders Keep Score
Five Credit Cards You Should Never Close
The Top Ten Credit Mistakes

MyFico.com Forums - Credit Cards



*I am not a financial expert. I just do what I do.

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