LowCards.com

[Greg Hampton]

closing a credit card account, while emotionally satisfying, could hurt your credit score. That, in turn, could raise the cost of getting a mortgage, car loan or even a new credit card.

In the past, the most effective way around this problem was to pay off the balance and stop using the card. As long as the account remained open, your credit score would remain unscathed. But increasingly, that strategy carries a cost. In response to credit card reforms that take effect Feb. 22, credit card companies are looking for new ways to raise revenue. Some are adding annual fees. Others have started charging inactivity fees if customers fail to use their card during a specified period.

closing a credit card account, while emotionally satisfying, could hurt your credit score. That, in turn, could raise the cost of getting a mortgage, car loan or even a new credit card.

In the past, the most effective way around this problem was to pay off the balance and stop using the card. As long as the account remained open, your credit score would remain unscathed. But increasingly, that strategy carries a cost. In response to credit card reforms that take effect Feb. 22, credit card companies are looking for new ways to raise revenue. Some are adding annual fees. Others have started charging inactivity fees if customers fail to use their card during a specified period.

To determine how closing a card will affect your utilization ratio, get out a calculator and copies of all your credit card statements. Add up how much available credit you have and how much you're using. Then subtract the available credit from the account you'd like to close. Ideally, you should have a credit utilization rate of 30% or lower.

•Your credit score. Consumers with excellent credit scores can afford to lose a few points, Ulzheimer says. FICO scores range from 300 to 850. If your score is 825, closing an account probably won't affect your ability to get a loan.

•Your borrowing plans. If you have a score in the mid-700s or higher, and you're not planning to apply for a loan any time soon, "You should feel free to close accounts, open accounts, as you see fit," Watts says.

But suppose you're thinking of refinancing your mortgage within the next few months or plan to buy a new car. The wisest course of action is to avoid closing any credit card accounts until you've been approved for your loan, Watts says. In the wake of the credit crisis, lenders are paying more attention to credit scores than ever. Ideally, you want a score in the high 700s, or even low 800s, to get the best deals, he says.

Many consumers fear that closing a credit card account will hurt their credit history, which accounts for 15% of the FICO score. But when you close an account, it doesn't disappear from your credit record. The credit bureaus will keep a record of your history with that account for about a decade after it's closed, Watts says.

Story by Sandra Block in USA Today:
http://www.usatoday.com/money/perfi/columnist/block/2010-02-09-ym09_ST_N.htm