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.
  •  

    Canceling credit accounts that still have a balance can come back and haunt you later. [Tweet this]

     
  • 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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What about closing out an auto loan by paying it all off ahead of time? I've heard keeping it active and paying it off bit by bit can improve one's score, but I would prefer just to be done with it. Does it matter?

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I closed 4 credit card accounts I had opened to buy online things with to recieve a discount. Paid them in full and closed all 4 about 6 months later. My credit score DROPPED 45 points because of the activity!

Reply by
sublimeexemplar

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Yep, because you just drastically shortened the average age of your accounts by massively dilution.

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I have a Bank account with $500 overdraft protection. Does this affect my credit? Online it reads like a credit line. Also, I have a debit card with the same bank, and an ATM card. do either of those count against my credit score??

Top Contributor

Reply by
ktjojo74

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Hi, great question.

First of all you had to have decent credit to get the $500 overdraft. the only time it will actually affect your credit (from experience) is if you repeatedly use it or use it and dont pay it back.  The bank will then report it and it is a bear to get it off your report. 

Part 2. Your debit card and ATM card do not report on your credit either way, 

Hope this helps.

1 Contribution
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My one credit is closed by there company because of too much over limit.If I pay down the debt of that closed account,my credit score is up or same score?

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Reply by
ktjojo74

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Great question. your score will improve when you pay down the card to 50% of limit and again when it is 35% of limit and because the card is closed, you will see the largest score increase when the card is paid to 0. 

I made the mistake of closing 2 credit cards before I paid them off (the company made me mad).  I saw an instant  drop in score because i reduced my available credit.  I am just now recovering  from that mistake even though both cards have been paid off for over a year.  Sheesh. Never do anything when you are angry. 

Hope this helps.

1 Contribution
0 People Helped

I'm near to paying off a line of credit from Beneficial Finance. I'm considering closing it at that time but I'm not sure how it will impact my score due to UCC. I hear that Finance Company accounts lower one's score. Also, you mention too much 'available credit' will lower the score. Are there any standards for how much available credit a person should have?

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My score dropped 29 points when I applied for a new credit card with Citibank in order to obtain 25000 airline miles. The only other reason for the score to drop was a cancellation of a Visa card by Chase Bank because of non-use.

1 Contribution
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I had a credit card through HSBC (Unionplus). I have very good credit and out of no where they closed my account due to "inactivity". How will this affect my FICO score. Anyone know?

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Reply by
ktjojo74

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It will affect  your credit for a couple of reasons.

1. depending on the age of the account, if it was one of your oldest accounts, this could hurt you quite a bit. I would ask to have it re-opened and then to keep it open just charge like one tank of gas each month and pay it off.

2, another reason it may hurt you is that it cut back your available credit.  For instance, if you had $4500 available when it was open and now you only have $3500, it will hurt your score a little.  The age of the account has more impact.

2 Contributions
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I applied for the Pulaski Bank card @ 6.5%. They are advertised in our newspaper every week as the lowest rate card available. I use only one card for everything and have been quite happy with my FIA card but they are going from 7.9% to almost 14%. I plan to cancel that card.

Thanks

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Would it be wise to take out a loan to consolidate an old loan and payoff 2 line of credit cards. How would this affect my score.

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Looking over my credit report, I have a few open accounts from way back in the day that I no longer have anything to do with. I have an HSBC account opened back in 2000. This was for a ring I bought for a gfriend. I don't think it was a credit card, but a loan specific for the ring. It says its still open, but with 0 owed, all in good standing. I also have a BofA account opened in 1998. This was my first car. It's all paid off, account in good standing.

Both of these accounts are some of my earliest loans, so they definitely extend my credit history. Should I leave these as "opened" since they don't seem to be hurting, and actually seem to be helping my credit history?

If you don't have a fee associated with the account, you should leave old accounts open.

Review by
CK Moderator

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