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

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

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

Do...

  • Consider closing unused cards that are costing you money. If your card has an extraordinarily high interest rate or an abundance of fees, and your provider isn't willing to lower your rate or waive some fees, you may want to consider closing the card - especially if you don't use it.
  • Be aware that you can usually cancel accounts that have an active balance by asking your creditor to close the account to new charges while you continue 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 some 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.
  • Remember to check your credit reports for updates and errors after you close accounts. You should generally wait 30 to 60 days for the creditor and credit bureaus 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. 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. A good rule of thumb is to keep your credit balances under 30 percent of your available limits if possible.

If you have any more questions, head over to our Community, where you can ask other Credit Karma members about various financial topics.

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All Comments

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1 Contribution
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yes this absolutely rediculious, paid off a 3yr. motorcycle loan in less than a year 10,000 and then pay off my best buy card 6000.00 (didn't close it) and my score went from 775 to 751. that just plain STUPID AS HELL. IM SOOOOOO ****ED ABOUT IT. Makes no **** sense at all. 

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A few weeks ago my bank notified me of unusual credit card usage, as my credit card number was used in San Diego, CA in the amount of $200, which they took off my statement. 

Then last week someone used my credit card number in New York, NY to purchase Grubhub food over a five-day period in the amount of $730.89.  I notified the bank.  I also notified Grubhub as to the illegal use at the various restaurants, the dates of use and the amounts of each purchase.  They SHOULD be able to backtrack to where they delivered the food and find the person who used the card number and make an arrest (in a perfect world). 

I told my bank that the card should have been cancelled when the theft was made with the illegal San Diego purchase.  Doing that would have prevented the theft in New York. I received notice via e-mail that the bank cancelled my credit card.  That was six days ago and I still have not received a new credit card from them.  Due to the cancellation of my credit card my score went from 840 to 822.

So much for being a reliable person with money!

1 Contribution
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Helpful to 1 out of 1 people

What a joke... I've had credit since my college days my entire life with out interruption. I am 52 years old, make $150K a year, have 2-years salary in reserve and found out today my credit is a 609. LMAO!!! I pay off everything and haven't missed a payment in over 30-years.

So here are the factors - I have a credit card that I set the limit at $2,500 eventhough it was offered to me $20,000. I use it for airline points and pay it off every month and have never paid a penny in fees or interests except my annual credit card fee. We pay grocieries, utilities, gas, eating out, hotels, entertainment, etc... and we probably spend $2,000 or more a month. I was hit with "Very Poor" credit card utilization - excuse me but you''re wrong.

Additionally, my average credit account is less than 2-years average. Okay - I pay everything off so I have a better income to debt ratio. That use to be the right way to handle your finances. So to put it in a nut shell I have had a credit account open consistantly for over 30-years not only 2-years you scamming shingle hangers. Sad day that you don't see world through your data driven glasses.

Scott

Top Contributor

Reply by
wjdNJ

46 Contributions
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Scott... nobody is scamming you. The factors used to calculate your credit score are well publicized. Because you've only accepted credit limits at or about your monthly credit card spending, your credit utilization is through the roof, even though you pay in full every month. Had you accepted the $20,000 offer, you would be in much better shape. Your post doesn’t mention why your average age of credit is less than 2 years. If you regularly close older credit cards when you get new ones, that would contribute to that problem.

You seem to be angry because you don't like the "rules of the game" and by not playing by those rules, your credit score has taken a substantial hit. My age and finances are very similar to yours. My average credit card balances are between $1500 and $2000 per month and are paid in full every month, yet my credit score is in the high seven hundreds (FICO) and low eight hundreds (Vantage 3.0). I accepted the higher credit limits for each of my credit cards. I also keep older credit cards that I don't use any more open as long as they don’t have annual fees and just make small charges to them every few months to keep them active. My credit card utilization is normally below 5%.

A high credit card utilization rate is a signal to lenders that a person is in debt over their head. So while you have done everything else right to secure your financial future (kudos!), your credit scores are taking an unnecessary hit. Credit scores do not take into account your income, savings or debt-to-income ratios because the credit bureaus don’t have that information. If you want to see your scores accurately reflect the reality of your financial security, then go ahead in increase your credit limits. You don’t have to increase your spending, just the limits. Then, just keep doing what you’re already doing – responsibly managing your debt. I am in 100% agreement with paying credit card debt IN FULL every month. Like you, I never pay a penny of credit card interest.

The benefit to your score will be almost immediate once those increases are reported to the credit bureaus and it will cost you nothing. It will demonstrate to lenders what you already know to be true, that you are responsible with your money and are a very low-risk borrower.

1 Contribution
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Be responsible, write your congressman senator and state reps telling them to follow the lead in other states making credit reports eleagle for employers and insurance companies. Pass laws that make it a crime to increase intrest rates on credit reports that do not show negative credit histories and perhaps this credit theft by unscruplous companies will at least diminish to the point that fairness will return.

2 Contributions
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Helpful to 2 out of 2 people

It is really hard for me to understand that people in US don't protest at all agains the credit rating practises. Like closing your old accounts to avoid fees to credit companies - of course they will lower your score when you do it.  Also they don't disclose their algorythm to anyone so they can do what they want and any time. 

At one point my credit score went down almost a 100 points when I had been overseas for several years and moved back to US. I disputed it 3 times and without any reason to lower or higher it they gave me 70 points back. There is no oversight or transparency and people let them control for the sake of profit. Awful to so may ordinary people. 

6 Contributions
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Helpful to 1 out of 1 people

The reason being for the score drop is there has to be other revolving credit to overshadow the closing line!!!

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

The credit system as we know it is made to keep the average income earner struggling to breath.  I maintained impeccable credit for 23 plus years (I never had one late payment) and missed one mortgage payment after being Unemployed.  My credit score dropped from the high 700 to the low 600.  The rest was history.  Every creditor lowered and closed my credit lines to the point I looked over extended in a matter or a month. An impeccable credit history for 23 years did not mean a **** thing to these credit fraudsters.  So I closed a pay everything.....I agree with a previous commenter...I don't put any emphasis on the **** score anymore.  Become a saver that is the only way to escape this slippery slope.

1 Contribution
2 People Helped

Helpful to 2 out of 2 people

The 16 point drop in my score was entirely worth getting my two big debts paid off. I'll trade a small drop in some robot's opinion of my credit worthiness for complete peace of mind any day. 

Credit Karma Team
Top Contributor
2949 Contributions
3924 People Helped

Peace of mind is worth a lot!

1 Contribution
20 People Helped

Helpful to 20 out of 24 people

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

1 Contribution
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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

1 Contribution
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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!!

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