Is It Better to Close an Account for My Credit Report?

Credit cards can be open even if you do not owe any money and have not used them for a long time. The Experian credit bureau explains that such accounts do not have a "paid" status. The balance fluctuates as you use the account, and shows zero if you pay it off. It also shows your available credit line. You may close the account, which changes your credit report information and affects your credit score.

Effects

Credit card closure hurts your credit score rather than helping it because of the way scores are calculated. The MyFICO scoring site explains that its formula looks at what you owe, your open credit lines and the age of your accounts. Credit card closure makes your debt load look worse because it erases a chunk of available credit, Bankrate.com Debt Adviser Steve Bucci explains. You also stop activity on the account, which hurts the history part of your score.

Process

Close your account properly to ensure minimal damage to your credit reports. Your credit score is harmed if it looks like the account was closed involuntarily because banks cut off credit cards if they see you ask a bad risk, even if the account is not delinquent. Call the customer service number on your credit card, request account closure, and specify that you want the status to reflect "closed by consumer." Send a letter that summarizes the conversation after your telephone call, Bankrate.com writer Holden Lewis advises.

Follow-Up

Check your Experian, TransUnion and Equifax credit reports a month or two after the closure. The reports are free if you get them through annualcreditreport.com, according to the Federal Trade Commission, because every consumer is entitled to no-cost copies from that site once a year. Make sure the closed account shows no owed balance or credit limit and reflects the fact that you closed it voluntarily. Complain to the bank or file credit bureau disputes if any of the data is wrong.

Warning

Credit card companies will close an account before it is paid off, but Bankrate.com Don Taylor warns that it is not a true closure. You still owe the debt, but the available credit line gets removed from your credit reports because you can no longer use the card. This action hurts your credit score by changing your debt to available credit ratio. The debt looks worse because of the credit line reduction. Leave your credit card open until it reaches a zero balance if you really want to close it.