permanently closing a credit card - Should I close unused credit card accounts?
Question:
I have several credit cards I'm no longer using. If I close them will it raise my credit score? Is there any other reason not to close them?

Answer:
There are a couple of issues to consider.

First the effect on your FICO score. A FICO score is a generic credit score used to determine that probability that a borrower will pay back a loan. Each of the major credit bureaus has their own version of the FICO score. The latest research indicates that closing cards will NOT help your credit scores and may in fact harm them. A possible explanation is that a credit score is a compilation of your lending history, so closing cards with a long history may hurt your score.

Secondly, consider that any open account is vulnerable to fraud. You are more vulnerable with an account you do not use because you will not be expecting a bill. If a crook obtains access to your account and changes the mailing address, you won't miss your monthly bill and the fraud could go unnoticed until it's too late. This is common practice among identity thieves.

The Wealthy Reader's advice:

Close any cards you do not use. The only exception to this would be the oldest account that you have. You may wish to keep that open. You may also want to close one account every month or so to limit the impact on your credit score. This is assuming that you have a need for a high credit score in the future, for instance if you are starting a business or getting a mortgage. If you are not doing any of these things and have no expectations of needing to borrow money then we recommend that you close all unused accounts as a safeguard against identity theft.

You should also consider getting a free copy of your credit bureau report and checking to make sure you don't have any accounts that you have forgotten about. Many store cards might fall in this category, for instance if you opened an account to get a discount on a wedding ring or a big screen television and then never used the card again, you may still have an open account. You should definitely close these types of accounts as protection.

I personally closed all of my unused accounts years ago. I ordered a copy of my credit bureau report and found all open accounts. I had to track down some of the numbers for the companies as I didn't have a physical credit card and I never received a bill as I never used the card. I used Google and Dex Online to track down contact information. I then contacted each company and asked to my account. Be warned, some may ask for a request in writing. However, if you are persistent almost all companies will allow you to close your account over the phone. The whole "send the request in writing" tactic is based on the fact that many people will never write in because they forgot or are just plain lazy.

What did I get out of this? At the time I had already purchased a home. I would never take out a loan to buy a car so I didn't care what the effect was on my credit score. I simply wanted the cards closed for piece of mind and to eliminate any possible temptation. At the time, as now, identity theft was a major concern. I simply didn't want to worry about someone using my account and causing me a bunch of problems, just because I was too lazy to close it.

I left only a single credit card account open. This is the card I use all the time so I'm always checking my balance and purchases online. It felt great to know that I didn't have any loose ends. Right now I only carry a debit card and a credit card. I have only one of each and that is all I need. I carry a Visa card because I find that Visa is almost universally accepted.

In this manner not only have I limited risk to my financial health and to my mental well-being (can you imagine what a pain it would be to try to clean up an identity theft mess), but I've also greatly simplified my life.

* Photo credit: http://flickr.com/photos/danesparza/387359609/



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