Credit Card Accounts - Should You Close Them or Not?

Many of the people that I talk to about improving their credit often confide in me that they've just spent the last year or more paying off some old credit cards. Now that the account is fully paid they proudly announce that they've just closed the account so that they won't be tempted to use the credit card again and rack up a bunch of bills that they can't afford.

Then they ask, "This is should really help my credit, right?"

In fact, they are both right and wrong.

When examining your credit, lenders are looking to see if you are using credit wisely. Paying off your debts is great.

If you are paying the minimum amount that you've agreed to pay on time, lenders would be very satisfied with that.

They also would like to see that you have the capacity or the ability to use credit responsibly. They can easily understand that if you have open credit cards with little or no balances on them.

CAUTION -- closing an old credit card account that was paid and is now in good standing will actually hurt your credit in the short-term since you would no longer have the ability to use credit with that account.

So, after you've paid down or paid off an old outstanding balance on a credit card, the best thing to do is to put your card away and store it in a safe place but do NOT close the account. This will demonstrate that you are wisely using your open line of credit.