The Link between your Credit Score and Closing a Credit Card Account
Have you heard the rumor about your credit card score being lowered if you close your credit card account? Are you now nervous about closing any type of account?
If so, then you must take into account several factors.
Annual Fees
First of all, many credit card companies are now imposing very steep annual fees on their credit cards. For example, Citi is now starting to impose a $60 annual fee on some of their credit cards. The fact of the matter is that most credit cards will not impose an annual fee, so in my opinion it only makes sense to close an account that is going to charge you an unnecessary fee. Will it lower your credit score a few points? Sure. Will saving the $60 every year be worth it? You bet.
Inactive Account Fees
In addition, many credit card companies are now charging fees for inactive accounts. In other words, if you have an open credit card account that you no longer use, you could very well be charged an “inactivity” fee by your credit card company. Again, in this instance, I would say that it is best to save yourself the aggravation and the unnecessary fee and close the account.
If you are unsure about closing your credit card accounts, but you want to avoid the fees, there are steps you can take. For example, simply charging one or two purchases a year on a credit card will stop the inactivity fee. You can also call your credit card company and dispute the annual fee; many credit card companies will comply if you are a good customer.
In the end, closing your credit card account will probably not lower your credit score substantially. Many times, a closed credit account lowers your FICO score because it shortens your length of credit history. Although this is usually true, the fact of the matter is that if you have a good credit score closing one account won’t affect your FICO score for very long.
You may, however, want to avoid closing an account before making any large purchases, such as a home or a car, as you will want your credit score to be as high as possible as to secure the best interest rate.
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