I have had clients, Mortgage Lenders, Investors, Real Estate Agents; people from all walks of life ask me when they should close an account.  When I hear them ask, my immediate response is to shout, DON’T CLOSE ANYTHING… until you understand the consequences of your actions.

“Never” is relative and there are times to do and times not to close your accounts.  Here are several things to consider before you close an account.

1 – Credit history identity theft repair is a very important part of scoring and the longer the history, the more it will count toward a better credit score.  Even if you don’t use the card, keep it active by buying a small item each month and then pay it off at the end of the month to keep the history alive and working for you.  If you close an account that is over 7 years, you will lose this history and the points associated with this history.  The more history with an account, the more it will cost you in points.

2 – A new account with derogatory’s  could be closed and increase your score because a new account hits your credit score 7 different ways.  However, if you are just establishing your credit and you need the account, it is better to keep the account and PAY YOUR BILLS ON TIME!  We will go over this later when we talk about new credit.  A new account could be new up to 4 years.

3 – If you have too many new accounts, then closing one that is rarely used could be helpful in increasing credit scores.  We will talk about this when we talk about Balancing Our Active Accounts.  For the time being, look at keeping an equal number of Revolving accounts with Installment accounts. We will go into far greater detail later.

4 – Department stores are notorious for offering a discount when you sign up for their credit card in the checkout line.  Be cautious when tempted to use this as it costs you points in 7 different ways and perhaps will not save you any money at all, but cost you.  Let’s give an example…

You have a hundred dollar purchase at XYZ Company and they offer you a store credit card at 17% interest. They will give you a 10% discount if you sign up for them right there. They will charge the full amount then give you the discount and save you $10 immediately. You do so and feel good about saving $10 on your purchase.  Now, you get the first bill and you are charged $1.27 in interest charges. If you pay it off, then you only have your credit scores hit 7 different ways to deal with. However, if you don’t have the cash, then you pay the minimum and your savings from the sale are reduced to $8.73.  If you are late, then there is a $39 fee attached and your interest rate goes to 23%, or 29% or 33% making things even worse.

We all think that it won’t happen to us, but these are uncertain times and keeping our credit scores clean and in the mid 700’s is like a financial insurance policy.  You may need it when you least suspect it.

You get a new online credit card reports in the mail and just can’t wait to get some shopping done. You go and put a nice big balance on that nice new card just to break it in. In fact, you heard that having a balance on a card is a good thing. Well, sorry to disappoint you but doing so could hit your credit scores 6 ways. You have an inquiry on your credit report (1), you have a new account (2), you have a new account with no history (3), you have a new account with a balance (4), your balance could be over 45% debt to credit limit ratio (5) and you now have too many revolving charge cards (6).

The solution is to be cautious with your new credit card. You do not have to use it right away and instead use it for emergencies only, but be sure to use it a little every six months. A little means as little as a dollar every six months.

Another great story to share with you folks! Cesar D.  started with us 10 months ago and we have raised his Equifax credit score 172 points. IT WENT FROM 542 TO 714!! Mind you this is with no positive tradelines reporting, just straight deletions.  His Experian score has been raised 111 points (501 to 612).  The TransUnion is a work in progress.  Monique is attacking that one for us.    (Just a sidenote: the Loan Officer is disappointed in our service because the middle score isn’t high enough to purchase a home yet.  She and I are going to have a TALK!)  The members are thrilled, that’s all that counts.