Protection Alliance

Having credit cards and being able to pay them monthly gives you, of course, a better credit score. Closing your credit card account is very different from closing your doors; it could weaken your credit score. Even obtaining a new credit card or car loan could be difficult after closing certain accounts.

Usually, the most effective way to close your credit card is to pay your remaining balance and simply discontinue using it – do not close it. It is a given that as long as your credit card account is open (providing credit history) your credit score will be stable. Although, this strategy may involve paying some costs. Last February 22, 2009 there were credit card reforms that took place. Credit card corporations are searching for means to provide revenue,  so some companies have initiated charging fees for account holders who have not used their card for a certain span of time, while others are giving additional annual fees.

According to the President of Credit.com for consumer education, Mr. John Ulzheimer, the effect of closing an account would really vary based on your profile. There are account holders who have closed their accounts and their score was not hurt, while others' scores may have declined but not really drastically.

There are three factors that you have to consider in closing your account: 1. total credit available; 2. personal credit score; and 3. borrowing plans.

Credit utilization ratio is a ratio based on your outstanding debts and the percentage of your available credit. When you plan to close your account, this will definitely lead to a towering utilization rate, but you should take note that even if you open more accounts, it will not also lead to lower utilization rate. Instead, this would create an impression that lending you money would be more risky. Hereís a tip for you to find out whether your utilization ratio will go up if you close your account: sum up your available credit and how much of it you are using and then deduct the available credit from the account you plan to close. You should always keep in mind that the ideal rate of your utilization ratio is around 30% or better if lower.

Credit scores have been around since 1950s when they were started by the Fair Isaac Company. The higher score, of course, the better. Scores range from 300 to 850. So,  if after closing an account your score decreases to 830, there is nothing much to worry. You can buy reports on your credit score from FICO.com, but if you want free credit profiles, CreditKarma.com and Quizzle.com will give you at least a view of where you stand.

Here is a final tip: if you have plans to obtain a home or car loan in the near future, do not close any accounts until you have obtained your loan. For more information on ways to obtain a mortgage, read our book: Get Your Credit Score To 740, under our E Books section.