Many years ago, I cleaned up my credit. I had paid off all my debts (minus our mortgage) and wanted to simplify my credit assortment. Back then, I had no awareness of credit scores. All I knew was I didn’t want to have so many accounts to keep track of.
Today, the talk of the town is about improving credit scores. What I didn’t realize back then, was that closing off most of your credit accounts can actually hurt your score. Still, if you want to simplify, there are ways to do that and still maintain a decent credit report.
In addition to making your life less complicated, having fewer credit cards can also prevent identity theft. At my height, I had at least 10 different credit cards – gas stations, retail establishments and a couple standard cards. If your wallet goes missing and you have 10 different accounts, it can be an instant mess!
Therefore, if you have a ton… closing off some accounts can be a good idea. Deciding which ones to close will help you also keep your credit score high. Closed accounts remain on your credit report and do contribute to your credit score calculations.
When evaluating which accounts to close, start with those that have the smallest credit limit. The main factor that affects your credit score when you close accounts is your reduction of available credit and in turn, the ratio between your debt balance and available credit. If you close those accounts where the credit limit is already small, they will have less of an impact to your overall.
Retail store accounts are the next to look at. You don’t really need them, as all those establishments also take standard cards. You should also close more recently opened accounts, as the longer your actual history with an account, the better your score.
Once you have narrowed down your credit card selection. A good rule is to contact the cards that you still hold and ask them to increase your credit limit. This will help to counterbalance the loss of the credit limits for the accounts you have closed.
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