Closing Credit Accounts: Pros and Cons

Perhaps you, or someone you know, has been threatening lately to “cut up all your (credit) cards.” Stopping the destructive cycle of unnecessary spending and subsequent debt overload is not, in and of itself, a bad thing. Taking away the source of temptation –namely, the plastic- is one way of resisting the urge to buy. If you’ve been meticulous in your budgeting, and paid off your debt, should you close your account? The answer may surprise you.

You should think twice before closing accounts that you have had for a long time, especially if you’ve had a great payment history with them. The accounts you’ve paid on the longest show off a good history over an extended period of time, and are priceless items on your credit report. On the other hand, having too many open accounts is a bad sign, as potential lenders for mortgages or loans will consider your debt as if all your cards were maxed out. The total number of credit lines you have open represent your potential debt, and you want to keep that amount reasonable. So, when you are considering your credit situation, go ahead with the scissors – but take some time to determine what accounts really put your best face forward for your credit report, and which are expendable and may be closed. ■