Hi RocketScientist,
Thank you for your question. This is a great question, but one that I can't answer with certainty because of the science (pun intended) behind the credit scoring methodologies. Having said that, there are some general guidelines and things to consider before closing an account, as doing so could negatively impact your credit score.
It could make sense to close to a credit card account in the following situations, but keep in mind that even in these situations, it's still possible your score could be lowered:
- You have several of the same type of accounts (e.g., several retail store credit cards) and the one you are closing is not one of your accounts with a high available credit limit.
- You are no longer using the account and are paying annual fees.
- You are struggling to control your spending and can't put the card away and stop adding to the balance.
- You are a joint account holder on a credit account and the other account holder is not using the account responsibly or you are no longer associated with the joint account holder.
- The account has been tampered with or opened fraudulently.
It is generally not a good idea to close a credit card account in these situations:
- Closing the account increases your utilization ratio (the amount you owe versus the amount of available credit). This goes to your question about how high of an available balance to keep. If you get to a point where you pay off your balances in full before the bill comes each month, then this is not as much of a factor. If you carry a balance, then lowering the amount of available credit you have will increase your utilization and likely lower your credit score.
- You are closing multiple accounts at once. This could be viewed negatively by potential creditors.
- You are attempting to consolidate all balances to one card and then close the rest. This would increase the amount you owe versus the amount of available credit, and likely lower your credit score.
- If the credit card is the only form of payment accepted at a place you frequently shop for necessities.
It's also important to note that closing a credit card account will not immediately remove it from your credit report. Positive account history remains on your credit report for 10 years from the last date of activity, and negative account history typically remains for 7 years.
To sum it all up, it may or may not make sense to close a credit card account as closing the account could lower your credit score. You may be better off leaving the account(s) open and simply putting the cards away so you aren't tempted to use them and accrue more debt.
I hope this helps as you continue on your journey of paying off the balances. You can also check out USAA's Debt Manager tool to see if there is a way to pay off the balances faster.
Mikel
