I have heard this a few times, and I just want to make sure people understand why closing unused credit accounts can hurt your credit score. 

The second most important factor in your credit score is your ratio of debt used (this is your credit card balances) compared to the amount of debt available.  So if you have two credit cards with a $500 total balance and a $1000 in total limits, you have a 50% ratio.  If you close one of the cards that has a $500 credit limit, you now have a 100% ratio and your score just dropped A BUNCH!

 Now….I am not saying that if you have 15 different store cards that you can’t keep track of that it might not make sense to close some of them eventually.  But if you are thinking about buying a house or a car, don’t close any credit cards.   If you aren’t going to be tempted to use those cards, there is absolutely no harm in keeping the accounts open.

If your debt is spread around on a lot of different cards the best thing that you can do for yourself is to consolidate the balances onto a card with the lowest interest and then keep the rest of the cards open with a zero balance.  If you have been making payments on time on your cards, that card that you want to transfer the balances to is likely to increase your credit limit to accomodate for the balance transfer.

Want to increase your score a little more?  Call up the credit cards that you just transferred the balances off of and ask to raise the credit limit, this will further create distance between your carried debt compared to your credit limits.  Now be VERY careful with this, the last thing you want to then do is go run up more debt. 

That’s all for today for Credit Week, if you have any questions about credit please email me or post in the comments.