Ask Money

Closed credit card account

Chris Farrell Nov 25, 2008

Question: I just received a letter from Chase informing me that they had closed one of my credit card accounts (I have two Chase cards) due to lack of use. I had this account for almost six years (in fact, the first credit card I ever had) and I have not used it for quite some time. The only reason I didn’t ask for it to be closed sooner was my understanding that keeping it open was more beneficial to my credit rating than closing it. Taking that into account, doesn’t this amount to Chase damaging my credit rating with no cause? Solon, Albany, NY.

Answer: It’s remarkable how fast we’ve gone from a credit card world defined by billions in solicitations and offers of 0% financing to one defined by slashed credit limits and closed accounts. Yes, your credit score has been dinged somewhat. It doesn’t really matter if you close an account or it’s closed by your creditor. The main impact typically comes if closing the account affects your ratio of total credit balances to total credit limits. Closing an account lowers your overall credit limit and raises the ratio. But with good credit card habits–such as paying off the balance every month–your credit score will bounce back. It reads that you manage your money well.

I believe that consumers should control their own credit habits and not follow the formulas of Fair Isaac, the main credit scoring company. I know that’s a bit naive, but in an era of identity theft and too-easy-credit it’s better for most people to close unused accounts than keep them open. (I realize in your case it wasn’t a choice. This is as a general approach.) The big exception is if a major purchase, such as a home or car, lies in your immediate future. In that case, it pays to wait to close the accounts until after the deal is done. But I would still close them.

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