If you possess credit cards you don’t use, you’re unlikely to improve your score by closing the account. In fact, closing a card might even lower your score. Credit scoring models don’t measure risk by how much credit you have available, but rather by how much of that credit you’re using — a ratio known as “credit utilization”. When you close an unused account, you reduce your total available credit, so your credit utilization increases thus reducing your scores.

On a positive note, closing an unused credit card account could save you money if your card has a high-interest rate or yearly fees. Alternatively, if you feel you have a shopping addiction, closing any accounts with $0.00 balance wouldn’t be such a bad idea as it eliminates any future spending money.

Throwing away unused cards is not a smart idea

Never ever throw away unused cards, the best way to close a credit card account is to be as safe as possible and that means paying off your balance in full and calling your card’s 800 number and directly speaking with a representative and verbally closing the account.

You should receive a confirmation letter within 7- 10 business days confirming your account was closed. If you do not recieve the letter or would like to check if your account was indeed closed, you can call back within 3-5 business days and check the status of your account.

Don’t cancel several accounts all at once.

Closing multiple accounts all at once could look suspicious to potential creditors. If you find the urge to cancel more than one credit account, then spacing the closures over time could reduce the impact on your overall credit health.

Your credit utilization percentage could increase.

Your credit card utilization rate is the total debt vs. your total credit limit. For example, you have a $1,000 credit limit on a credit card and your current balance is $800, your ratio is at 80%. When you close a card, you reduce your overall available credit and that can potentially affect your scores.

This factor equates to 30 percent of your total credit score and it’s a quick and easy way to gauge how you’re managing your credit and lenders can asses whether you’ll be able to pay off your debts without any problems in the future.

If you keep your overall credit utilization below 10 percent, it typically shows lenders that you’re using credit, but not dependent on it.

The Bottom line is

If you are thinking about closing an account, be mindful about it. Educating yourself on how credit works and the negative implications it might have on your scores is a sure way to help you make a wise decision.

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