How many ARE too many? There’s no straight answer to that. If you have a card (or more) that you haven’t used for over a year, then you may consider closing a card or two. Close the card with annual fees or highest interest rate first.
When should you close an account?
Closing a credit card should be done only as a part proper financial management. Never close a credit card as an attempt to fix your credit or raise your score. Closing a credit card account will NEVER raise your score. It may or may not lower it, but never raise it.
Closing a credit card account also won’t erase the card’s history from your credit report, nor will it keep that history (positive or negative) from being included in your credit score.
Negative credit card history will continue to appear on your credit report for 7.5 years, even if the account has been closed. Closed accounts in good standing will remain on your report for at least 10 years.
If you think closing a credit card is the right thing to do, close it regardless of the effect it has on your credit score (Never make a change 6 months prior to applying for a mortgage).
Before you pick up the phone to call your credit card company, make sure you fully understand the impact of closing an account on your credit score.
Closing an account may raise your utilization
Closing a credit card account lowers you available credit and raises your balance-to-limit ration (credit utilization). This may impact your score if it raises your utilization above 35% (Utilization counts for 30% of your Fico). However, if you carry no balances then it doesn’t matter anyway.
Make sure you know what is the limit on the card you’re closing and how will it affect your utilization. You may want to lower your balances before closing the credit card.
Closing an account may shorten your credit history
Closing a credit card may shorten your credit history and make it younger. Since length of credit history counts for 15% of your Fico score, it may lower it. However, it won’t happen overnight because closed accounts continue to appear on your credit report for at least 10 years.
Since the Fico score looks at both active and closed accounts, by the time the closed account ages off your report it may have a very small effect on your score.
As a rule of thumb, it’s worth keeping your oldest card only if it’s older by more than 4 years from the other cards. If the card is less than 4 years older than your other cards it makes no difference.
In short, your credit score could be affected by closing a credit card if
- The card still has a balance
- It still has high limit when your other cards don’t
- It is your oldest card (though this won’t matter for at least 10 years)
- It is your only credit card
What will your credit report show?
When a credit card issuer closes an account, there’s often a comment left on the credit report, “Closed by credit grantor.”
Although you can ask that the comment will read “Closed by request of cardholder“, as far as Fico score goes it doesn’t matter who closed the account.
What if I still have a balance on the card?
You cannot close an account until the balance is paid. Even if the balance is zero when the account is closed, it’s extremely important that you get a confirmation for it in writing (here’s why) and keep it forever.
How to close a credit card
Start the process by calling the card issuer, and let the customer service representative know that you want to close the card. Make sure your balance is zero, and mark the date, time and name of the representative you talked to.
Next, follow up with a letter confirming your desire to have the credit card closed (you can use this sample letter). Send your written notice via Certified Mail, Return Receipt Requested. Keep a copy of the letter for yourself, and mark the date.
When a written confirmation that the account is closed with zero balance arrives in the mail, make a photocopy of it and keep both forever (here’s why). If it doesn’t arrive in two weeks, call them again and demand such confirmation in writing.
Next time you pull your credit report, make sure that the account status is closed, and that the balance is zero.