By Andrew Housser
Every so often, someone might consider closing one or more credit card accounts. Reasons vary from person to person: Maybe the temptation of available credit is too much. Perhaps after spending years paying off a card, you want to shut down the account. Or maybe the 10 percent discount you earned on a store credit card isn't worth the sky-high interest fee. Regardless of your reasons for wanting to close a credit card account, review these basic do's and don'ts before you take action.
1. Close long-standing accounts. When you close a card with a long and positive payment history, it shortens the length of your credit history. That's not good, because lenders view borrowers with short credit histories as riskier. It's better to keep it open even if you do not use the account.
2. Assume an unused account will automatically close. Creditors can keep your credit line open indefinitely regardless of whether it is active. To find out if an account is closed, contact the credit card company either via phone or mail (if sending a letter, be sure to include your account number). You should receive a confirmation via mail within 30 days confirming the status of the account.
3. Over-consolidate balances onto one account. Moving debt to one card may make it easier for you to manage. Before doing so, thought, calculate your credit balances. If your used credit exceeds 50 percent of the available limit on the card to which you are consolidating, your credit score may take a hit.
4. Cancel if you're looking to make a major purchase. If you're planning to take out a loan for a house or car, or are considering a refinance, hang on to your unused credit lines. Account closures could cause your credit score to drop -- at least temporarily. This is not helpful when a mortgage lender or other major creditor is checking out your credit history.
5. Go overboard on closures. Closing too many accounts at once also could negatively affect your credit score. It's better to close accounts one by one (if at all, referring to No. 1 above).
If you think that closing one or more accounts is indeed the right action to take, consider these pointers first:
1. Close cards you don't use, and those with high fees. If you know you or a spouse is highly likely to ring up large amounts of debt if the credit is available, closing an account might be smart. Closing accounts also lowers your chances of becoming a victim of identity theft. In general, close cards that charge annual fees or have high interest rates first.
2. Consider closing an account that still has a balance. To prevent additional spending while you're paying down a balance, ask the creditor to close the account to new charges.
3. Switch to one primary card. Select a card that has low interest, no fees and perhaps benefits such as purchase insurance. Use it to charge only what you can afford to pay in full each month.
4. Keep an account open. Creditors like to see that you can actively and responsibly use credit. It is usually a good idea to keep one credit card account open to maintain a strong credit score.
5. Destroy canceled cards. Run these through a shredder; if unavailable, use scissors to slice through the section that has your account number. Discard the pieces in separate trash containers.
6. Use your rewards. Once you close an account, understand that you may be forfeiting associated perks. Redeem travel awards or points for purchases first.
7. Check your credit report. It can take up to 60 days for account closures to show up on your credit report. If you do close an account, check your credit report after this time period for updates and errors, and make sure your account denotes "closed" status. Contact your credit card company if you notice errors or the account remains open.
Remember: Closing an account won't erase bad history, nor is it likely to shore up your credit score. But if it helps you feel more in control of your financial life, closing an account can be a smart decision.