Ask Money

Closed credit card account

Chris Farrell Oct 5, 2009

Question: I just received a notice from HSBC, one of two of my credit card companies, that they were going to increase my interest rate – again! (Six months ago they increased it from 9.9% to 14.9%) This increase is unrelated to any delinquency on my part nor a particularly low credit score (approx. 760+). The notice indicated that HSBC was raising my interest rate because I am part of a “class of accounts” whose interest rates are being raised as of December of 2009. They are offering me the opportunity to “opt out” of the increase. This means they will cancel my account. I know Marketplace has advised other listeners that closed credit card accounts negatively impact credit ratings – so my question is: should I keep the account open and not use the card or should I “opt out” on the presumption that it will not negatively impact my credit score? Chris, Los Angeles, CA

Answer: You have a lot of company. Yes, closing the account will have a slight negative effect on your credit score. The impact of a closed account comes from the change in your ratio of total credit balances to total credit limits. A closed credit card account lowers your overall credit limit and raises the ratio.

But so what? The nick won’t really matter unless you’re in the market to buy a home, a car, or some other big ticket item. If that’s the case, I would swallow the increase for now. But if you aren’t going to be borrowing money anytime soon I would recommend closing the account and paying off the balance at the lower rate. Why reward this company with your business considering how it is treating you? After all, the real goal is to get rid of credit card debt. And the effect on your credit score–if any–does fade with time.

One other point: Do you really need more than one credit card anyway? I can’t think of a good reason why anyone wants more than one. An important exception to that rule is having one for personal use and the other for business expenses. It makes record keeping easier.

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