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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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!!

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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.

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This is why I'm going with a self-loan system. Get $5000 in the bank, and anytime you need to buy something under that amount, take the loan from yourself, and pay yourself the interest and actual payment. Your total base should increase dramatically in just a few short years, ultimately taking you off this bs credit system. Just keep a few open credit cards to keep your score up.

Credit Karma Team
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Reply by
CKCharmaine

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Hi BB96881, thank you for sharing your system.

2 Contributions
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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.

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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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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. 

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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
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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. 

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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.

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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

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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!

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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
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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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I just paid my Furniture off with Conn's in Austin. I started at $2700 and no interest for a year. After a year the interest would be added to the beginning figure. So that the balance owed would be $5500. Now my furniture is worth $2000 but not $5000. I just paid it off on Friday May 30th. Thinking I was doing the right thing and being responsible for my debts. Well I lost a whole 3 points for doing that. Not that my Credit score was immaculate but I was trying to gain points not lose points. So now instead of 592 I have 589. Isn't that just wonderful? Ughhh

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