Don’t Close Credit Card Accounts While Building Credit

Be careful when it comes to closing revolving accounts, especially credit card accounts you’ve had for years.

Those very credit card accounts contain credit history and increase your available credit percentage, two things that other creditors deem important when considering you for financing.

If you’ve got a credit card lying around that you rarely use you may think closing the account would probably be the best solution. Or if you recently received a new credit card, you may think to yourself that one card should suffice. But constantly upgrading cards and closing old ones will leave you with very little active credit history.

By keeping credit card accounts open, you keep the history of the card active, and the available credit balance is counted in your overall credit profile. If you close a credit card account with a $5,000 credit line, you’re essentially wiping out $5,000 of your total available credit, and raising your credit utilization. You’d also effectively lose the value of that card as an active tradeline.

Keep in mind that many lenders require a certain amount of open, active tradelines. Many mortgage lenders require potential borrowers to have 3 active tradelines with a 2-year history on each. Imagine if you had three, but closed one recently. You could run into trouble when applying for a loan. Not to mention that your credit score would likely drop as your available credit percentage diminished rapidly with the closure of the card.

So keep your credit card open, and try to link each one to a monthly payment you make. If you have a credit card you never use, set it up to pay your monthly cell phone bill or cable bill. Then pay it off immediately each month. This will keep the card active and build good credit history. Even if the APR is high and you’ve got lower interest credit cards that you use, it can still work for you in other beneficial ways.

There is a caveat. If you’ve got plenty of credit, credit history, and a great credit score, this isn’t as important. Or if you have an excessive amount of tradelines. But if you’re trying to build credit, it’s essential to keep accounts open to establish credit history and depth.

Related Topics:

1. Should I Close My Credit Card Account?
2. Use Credit Cards for Automatic Billpay
3. American Express Paying Customers to Close Their Accounts
4. Watch Out for Credit Card Inactivity Fees
5. Always Keep At Least 3 Lines of Credit Open and Active