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Closing old and unused credit accounts can
help you avoid unnecessary fess and guard
against identity theft. 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 the target of identity thieves.
Close the accounts with annual fees and
the highest interest rates first.
-
Check your credit
report online to see the status of your
accounts. Look for late payments, high
balances and signs of identity theft. As a
bonus, checking your credit report can
save you some research time by providing
you with contact information for each of
your creditors.
-
Be aware that you can
cancel accounts that have an active
balance. You can ask your creditor to
close the account to new charges and
continue paying 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.
-
Keep four to six
credit accounts open. This will 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. Reserve the other
cards for emergencies only so that you are
not tempted to overspend.
DON'T…
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Don’t close the
oldest account on your credit file. This
could cause your credit history to appear
shorter and could harm your credit score.
-
Don’t 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 credit company. You should receive
an account closing confirmation letter in
10 days.
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You shouldn’t 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 will reduce the chance of attracting
negative suspicion form potential
creditors.
-
Avoid
over-consolidating balances onto one card.
If your credit balances rise to above 50%
of your available limits, you may see a
drop in your credit score.
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Don’t forget to
check your credit report for updates and
errors after you close your credit
accounts. Wait 30-45 days for the creditor
to report the closed account and the
credit reporting agencies to update your
records. While the accounts and their
payment histories wills stay on your
report for 7-10 years, they should be
marked as “closed”.
Brought to you by
TransUnion from their TrueCredit website.
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