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Should I Close My Credit Card Accounts? By 720 Credit Score

By Philip Tirone

As part of my commitment to providing free credit education, I regularly answer frequently asked questions and offer credit repair tips.

Here’s a question that recently came across my desk:

I have an open, old credit card account.  Don’t want to close it because it helps my credit score but I have no balance on it.  I have a limit of 6,000 on it.  Should I close it or at least lower the credit limit on it.?  I have another credit card I like better with a large balance 6,000 that I’m paying down this year.  I’d like to keep that one to use and should I lower that limit too once I get it paid off.

If you want to know how to raise your credit score, know that you should never close an account, nor should you ask for the limit to be lowered.

Here are a few credit repair tips that I can offer as explanation:

1) A big part of your score is the age of your accounts. Closing an old account can lower the average age of your accounts and, in turn, lower your credit score.

2) It sounds like you have only two credit cards. The credit-scoring formula will respond best to people with at least three and no more than five credit cards. Why at least three? They need enough information to judge you, and one or two credit cards simply is not enough information.

Ultimately, you should have a 720 credit score if you want the best interest rates. I’ve rarely seen people with 720 credit scores who have fewer than three active credit cards on their credit reports. But I have seen my fair share of people with more than five credit cards who still have a 720 credit score (or higher).

The moral?

If you already have more than five credit cards, you best course of action is to pay off your extra cards and let them go inactive. Do not close them. Do not reduce the limit.

3) Your three-to-five credit cards should be kept active. If you do not use them, the credit-scoring bureaus will not know whether you can juggle multiple debt obligations, and they will assign you a low score. Better safe than sorry, they will think.

You can keep the cards active by setting up an auto-pay on a small monthly bill, like your gym membership or a magazine subscription. This way, you keep the card active while still maintaining the low balance.

4) Part of your score is based on your balance-to-limit ratio. The credit-scoring bureaus look at both your individual accounts and your collective debt as a percentage of your collective limit. This is called a “utilization rate,” and in both cases, the closer you are to a 30 percent utilization rate, the better.

Let’s say you have two credit cards. One of them has a $6,000 limit and a $6,000 balance. In other words, you are maxed out. On that credit card, your utilization rate would be 100 percent, which would not earn you any points with the credit-scoring bureaus.

Assume now that you have a second credit card. This one has a $6,000 limit and no balance. On that credit card, you have a 0 percent utilization rate, which is great for your credit score.

And your overall utilization rate (assuming those are the only credit cards you carry) would be 50 percent, which isn’t great.

5) Since I don’t know the limit on your card with a $6,000 balance, it’s hard for me to tell whether that card is hurting or helping your credit score. If the limit is not at least $20,000, it is likely hurting your score.

You see, the credit-scoring bureaus will respond best to people with no more than a 30 percent utilization rate. So in your case, if the card with a $6,000 balance does not have a limit of at least $20,000, you have exceeded the 30 percent rule.

If this is the case, you should transfer $1,800 to the card with a $6,000 limit. This way, you maintain a low utilization rate on the card with a $6,000 limit, and you lower the utilization rate on the card with the $6,000 balance.

Keep in mind that my answers are always based on a credit-scoring perspective. You might have valid reasons for wanting to close your credit cards. For instance, if you have a long-term habit of abusing credit, your finances will probably be much better off if you live a credit-free life while adjusting your spending behaviors. But from a credit-scoring perspective, the answer to “Should I close my credit card accounts?” is “No!”

  • Anthony

    I have a fico of 595 and have 3 credit cards closed by the grantor. I opened a secured card with a 300 limit. I paided off one card that was closed. The other 2 haven’t missed a payment for 17 months. The cards were closed over 2years ago. I also have 40 inquiries the past year. I’m trying to get my score up 65 70 points fast so I can get a new auto loan for 50k. Wil the secured card raise my score in a few months so I can get a decent interest rate? I aslo put a non refundable deposit on a new truck. The bank told me in Novemember to come back in 3or 4 months and they said they’d see what they could do.

  • KEVIN FELDSHER

    HELLO,
    MY NAME IS KEVIN & I AM VERY INTERESTED IN STARTING 1 OF YOUR “7 STEPS TO 720”,HOW EVER,I AM ON A TIGHT FINANCE BUDGET.PLEASE GET BACK TO ME SOON.MY EMAIL IS kevinfeldsher@gmail.com MY #818-804-6052
    thank you,
    KEVIN FELDSHER

  • Aggie Vals

    I’ve been unemployed for 2 1/2 years. I’m steady looking for a job but since unemployment ended things have moved from tight to barely fitting. I’ve kept up my payments and tried my best to not do credit couseling but I’m going to have to do something since I’m about to max all my credit cards and finding it barely able to make all my minimum payments. I’ve never been in this predicament in my life. What is your advice?

  • Vera Gentry

    I have five major credit cards that are almost maxed out due to some unwise expensive purchases. As a result, I have been receiving numerous letters from consolidators wanting to reduce my debt and payments. I have been told to steer clear of these, so they all go in the garbage. I have also been told that I could negotiate with the credit card companies myself to reduce my interest rate or even “forgive” some of the debt. Every time I have called, I get a “no way” and cannot talk to anyone higher up. I pay a little more than my minimum every month and on time. Believe it or not, I still have a decent credit score. Is there any way to get help in situations like this

  • Peter

    I have heard that once four years have passed since the last payment was submitted on a revolving debt, it is no longer collectible. Is that a true statement?

  • William

    Just started your 14 day course. Need to make a decision. I have started an LLC with a small business banking checking account with my credit union. I was thinking of opening a small credit card under the LLC. That would be my 4th credit card. The LLC is covering my option trading which I am also just getting into. I wanted to use my business account to cover a training class and trip for my option trading, for tax purposes.
    Should I wait to apply for the card? the trip and class is next month. I will be buying my FICO score today.

  • These are great tips for maximizing your credit score. I really like how you explained it so clearly. I really like the idea of keeping some credit cards active by assigning regular monthly payments to them like magazine subscriptions. This is such a smart tip. Thank you! I never quite understood the utilization rate idea, but now I’ve got it. Time to transfer some debt!

  • Karen

    You suggest to have Three credit cards I only have one which ones do you suggest that a person should have I have Capital One

  • Darcey

    Should one close a subprime credit card (i.e. First Premier Bank)? These cards have monthly servicing fees and they will never go inactive. How should one handle this?

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  • Norma

    Thank You for the credit lesson and the reasons behind not to close your credit card accounts. Before taking your 720 class, I would have probably thought the same way as the person who sent in the question above. You hear not to have too many credit cards and automatically think, “I can go ahead and close to cut down the number of credit cards” no one tells you it will drop your credit score (even if you have been an on time payer on the credit card you want to drop). Thanks Philip for letting us see how this truly affects our credit score!!

  • Joe

    I have one collections, is a cable company, I switched companies several years ago, and I owed the last month, they sent me to collections right away, they didn’t give me a chance to pay it, which I did, as soon as I saw the balance due, I didn’t know I had that collections until I took your course and did a credit check, I’ve contact them twice to get that removed since I paid it right away, and twice they haven’t gotten back to me, what can I do to get that removed? is been 4 years, is charter cable, by the way.

    • Richard Branam

      Hello Philip Tirone and Joe and all, the amazing wisdom and intelligence and sacrifice we are receiving from all Mr.Tirones vast knowledge is mind boggling. May I suggest for Joe, if you have a receipt, credit card statement there you be.No Co. can argue paper work. I appreciate very much Mr. Tirones constant commitment and encouragement in our behalf not only toward our credit score but also our personal weaknesses.That really need and should be addressed toward our financial instruction. Thank you so very much, Mr. Tirone.

  • cynthia

    I am so happy that I read this information. I have spent the last 3 years with one credit card with a $1000 limit thinking that my credit score should be improving. Knowledge is wonderful, I now know why my credit score stays low! Thank you, thank you, thank you