The Do’s and Don’ts of Closing Old Accounts

The Do’s and Don’ts of Closing Old Accounts

Closing old and unused credit accounts on your credit reports can help you avoid unnecessary fees and guard against identity theft. However, it can also cause your credit score to drop if you are not careful. Here are a few do's and don'ts for closing those dormant accounts:

Do...

  • Consider closing unused and idle accounts. These accounts could be charging you unnecessary fees and are often targets for identity thieves. If you decide to close one or more accounts, consider closing the accounts with annual fees or the highest interest rates first.
  • Check your credit reports online to see the status of your accounts. Look out for late payments, high balances and signs of identity theft. Additionally, checking your credit report could save you time by providing you with contact information for each of your creditors.
  • Be aware that you can usually cancel accounts that have an active balance by asking your creditor to close the account to new charges and continuing to pay down the balance each month. This may be a good way for heavy credit users to prevent new spending while they are reducing their balances. However, watch out for additional fees.
  • Aim to keep four to six credit accounts open. This is generally recommended to keep your credit score and debt balances healthy. Signs of active and responsible credit use are viewed positively by creditors.
  • Designate one card for regular use and try to pay the balance in full each month. Think about reserving the other cards for emergencies only so that you are not tempted to overspend.
  • Remember to check your credit reports for updates and errors after you close your credit accounts. You should generally wait 30 to 60 days for the creditor and the credit reporting agencies to update your records. While the accounts and their payment histories may stay on your report for seven or more years, the status should be updated to reflect that they are closed.


Don't...

  • Close the oldest account on your credit reports. This could cause your credit history to appear shorter, which may harm your credit score.
  • Just throw away old cards and expect your accounts to close automatically. The safest way to close an account is to send a certified letter to the customer service department of the creditor. Typically, you should receive an account closing confirmation letter in 10 days.
  • Be pressured to cancel several accounts all at once. Gradually paying down and closing accounts may be the best plan if you are unsure about the impact on your credit score or the amount of debt you need to carry. If you want to cancel numerous credit accounts, spacing the closures over time could reduce the chance of attracting negative suspicion from potential creditors.
  • Over-consolidate balances onto one card. As a rule of thumb, if your credit balances rise to above 30 percent of your available limits, you may see a drop in your credit score.

If you have any more questions, head over to our forums, where you can ask other Credit Karma members about various financial topics. When you're ready to apply, find the best credit card for you.

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Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

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1 Contribution
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Helpful to 20 out of 24 people

Does paying off 2 credit cards in collections help raise your credit score?  

1 Contribution
22 People Helped
Helpful to 22 out of 26 people

It may or may not.  It will give you a lower utilization which should raise your score.  Depending on how long since last payment it may or may not be worth it (5+ years).

Paying them off may help, but will not fix your credit.  The original deliquency will still show.  Your credit will imrprove over time if you are patient and use it wisely.

Reply by
stickz

1 Contribution
36 People Helped
Helpful to 36 out of 45 people

no infact you should try a pay for delete everytime you pay on a derrogatory mark you renew its time it will be listed on your credit report the older the mark the less it hurts you. Say you have a $500 debt thats been on report for 4 years you pay it off well now its renewed to the date of paid off which would be new activity so the time it stays on your report is refreshed. Newly & refreshed derrogatory marks hurt you more than leaving it.

Never settle fight to get things removed most places will do a pay for delete option they just want money get it in writing and your golden.

Reply by
Ugggh

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Helpful to 0 out of 1 people

So one would be better off (score-wise) to NOT pay off accounts in collection?  How does that make sense??

1 Contribution
3 People Helped

Helpful to 3 out of 3 people

Why did my credit score go down 14 points when I paid off my auto loan?!!  What a scam credit reporting companies are!  Like someone else had mentioned, the big credit reporting companies don't want you to be debt free because then they can't  make any money!!  

What's the point of paying off a loan on time if your score goes down?  The loan eventually has to be paid off.  Dumb!!

1 Contribution
20 People Helped

Helpful to 20 out of 27 people

 I've got a question. I paid off all my credit cards and a small bank business loan last in

sept. One of the credit cards was one in which I  opted out since they were raising everybodies interest rates after the credit reform act. (Go fifure). Why did my credit raing go down? I also had a bankruptcy come off at it's 10th anniversary in July. Why do I not see an increase in my score? Also, I may trade in my car for another,. Will the inquiry hurt me? Will the trade help or hinder?

Reply by
ibrown4

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Helpful to 25 out of 41 people

"APPLES TO APPLES..."; NO BLANKET STATEMENTS CAN BE MADE REGARDING HOW CERTAIN VARIABLES WILL AFFECT ONE'S CREDIT SCORE...each situation is unique and it is of critical importance to realize you will NEVER understand credit scores if you do not understand this concept.  NEVER...If you do not understand it is okay b/c this seemingly simple concept it is actually quite complex.  With that said, not all hope is lost as certain generalties can still be deduced.  Here is what  we know (we think): 

1) All credit cards + small business loan were paid off and credit score  went down...Why? -To illustrate the importance of the aforementioned concept, here are some of the just some basic factors that do not qualify me (or anyone) to make any blanket statements (what does "all credit cards" really mean? how much total credit card debt was paid off or down? how many diff trades (cards) were paid? what was (now what is) the utilization rates? was there previous delinquency on some/all accts? what degree of delinq? what status was (now is) those accts in? are they open, closed (initiated by you or by the bank)?...You get the idea and I'm not even going to introduce bankruptcy into the equation...bottom line you do not have to know all these things to understand credit (just knowing that you dont know)...

1 Contribution
3 People Helped

Helpful to 3 out of 4 people

I am not sure how we call ourselves progressive and intelligent people and yet collectively we have bowed down and agreed to play the role of suckers so capitalism can thrive. It is no wonder many people are stressed and addicted to "things" to try to cope.... we are slaves y'all.

2 Contributions
4 People Helped

Helpful to 4 out of 5 people

Good or bad score, I feel alot better about paying off my debt, I too just got done paying off all my debt. Yeah my score went down, but so what. I have a few less phone calls and more money to spend one other stuff. I can now save what I spent on my debt and pay for whatever I want with cash and you don't need a credit score for that. Take it from me, if you can pay off a bill or two do it.  A score is only a number, and collection agencies do not care what your score is.

1 Contribution
11 People Helped

Helpful to 11 out of 14 people

what do you do about things that are already in collections? is there any way to repair/settle those without damaging things worse? I found a collections for an apartment we lived in saying we owed them money to replace carpet,even though we had a walkthrough and they knew the carpet was old when we moved in,so I contacted them and paid it anyways with the understanding that it would be removed from my credit,I was denied an apartment and didn't even know about the debt...its still on there,anything I can do?

Reply by
dub12345

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11 People Helped
Helpful to 11 out of 13 people

The first thing u should have done was dispute the charges with the credit bureaus, you should not have paid the charges as this is deemed an admission of guilt.The fact that u did a walk thru with ur landlord at the end of ur lease is enough proof for the credit bureaus to take ur side, shady landlords are a dime a dozen,next time take photos when moving.i hope this is helpful. 

2 Contributions
115 People Helped

Helpful to 1 out of 1 people

I followed CreditKarma's advice to refinance an auto loan that I had at 14.77%. I did this with a company that CreditKarma recommended and received a new loan at 6.78%. But this company didn't use my TransUnion score of 715 to acquire this loan but instead used my Experian score which is 692. This caused me to get a higher interest rate than I should have gotten if they had used my TransUnion score!!! also, the agent that I was dealing with told me that if I would refinance this loan that my credit score would go "UP" by 20 - 30 points. This was a major factor in me deciding to refinance in the first place. However, my credit score did "NOT" go "UP" but rather went "DOWN" by 4 ponits!!! What "BS" these companies are dealing to get your business and interest money!!!

Then I read posts on here from people saying that you need "MORE" debt to have a better score. But if you use CreditKarma's score simulator and see how opening a credit card account will affect your score, your score will go "DOWN" for opening a new credit card!!! So what the heck do they want????

Credit Karma Team
Top Contributor
2506 Contributions
2712 People Helped
Helpful to 1 out of 1 people

It's not unsual for a new account to cause your score to drop, due to the hard inquiry. However, after several months of responsible payments, most consumers will see an increase in their score. 

Top Contributor
23 Contributions
78 People Helped

Helpful to 5 out of 5 people

This article is bad advice. Closed accounts are still included in a true FICO score for 10 years. So, closing an account will not reduce your AAoA any time soon. The closed account will no longer be factored into your utilization ratio, so closing a high limit account when your balances are high on other accounts is a bad idea.

1 Contribution
3 People Helped

Helpful to 3 out of 4 people

I paid off my home and my credit score went down, because it closed the account, being responsible and paying off debt should be rewarded but it is not. There is no method to the madness.

Reply by
Corington

2 Contributions
3 People Helped
Helpful to 3 out of 4 people

I feel ya, I just paid off my car (the reason I got a car loan in the first place was to boost my credit score) and my credit scores dropped significantly. So NOT cool. I too thought it would make my score stay the same or boost it a little not knock me into the red. This whole credit worthyness stuff is a bunch of whooy!

2 Contributions
1 Person Helped

Helpful to 1 out of 1 people

Some input from a senior........we have 15K on credit, own our home, and have NEVER been late on any sort of payment.  Although our credit score indicates excellent with Trans Union, the other two credit scoring agencies list us a good to very good, I have no idea what these two are basing this on????????

Credit Karma Team
Top Contributor
2506 Contributions
2712 People Helped

Hi Magic051,

Your lenders are not required to report to all three credit bureaus so information can vary between your credit reports. Since the reports can contain different information, and use a different score formula, it's not surprise that the scores don't always match. 

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