|by Brooke Kaelin|
How will closing out multiple credit accounts affect your credit score? Any time you close an account, your credit score will drop. How much it drops depends on your entire credit profile. Things like, how many lines of credit you have, how long those accounts have been open, and whether or not you are carrying a balance on any of your credit cards. (See: How your credit score is calculated)
Let’s take a look at an example situation that was recently sent in to us, and then we’ll dissect it and see what’s going on.
I have a credit card account with a credit line of 20K that I opened with a 0% balance transfer for 15 months. I just paid off the card with another balance transfer offer with similar terms and will be paying off the loan by the time the 0% interest ends. I have an excellent credit and have a couple of other credit cards with no preset spending limit that I use regularly but never carry a balance.
1.) Should I close my first balance transfer account which now has no balance?
2.) Should I close my second account once the balance has been paid off?
3.) I have a couple of Visa/MasterCard type of charge cards that have very small credit lines and do not intend on ever using them. Should I close them out?
4.) I have several store cards that I opened only to take advantage of their initial purchase discounts (i.e. JC Penney, Old Navy, etc.) and do not typically use them–I want to close the accounts so I can take advantage of discounts by opening new accounts after 6 months if I choose to. Should I close out the accounts?
Thank you in advance for your reply.
Thanks for your questions Ben!
Honestly, I would not close out any of your accounts until that balance transfer is paid down. However, since your credit is so good, you can probably get away with it to a point.
The basic rule for closing out accounts is to close out the youngest accounts with the lowest limits first.
Try temporarily picking up a credit monitoring service. You should monitor all three of your credit reports and scores, not just one. This way you can see exactly how closing each account affects your score, and you can be sure that the closed accounts get reported correctly to all three bureaus the following month. It would be worth the (average) $15 – $30 a month monitoring fee to prevent your credit scores from tanking.
Once you are monitoring your reports, close out those store cards first. I would close out at most one account per month, and only as long as your score doesn’t start falling.
When you start getting into accounts with larger balances I would only close out one every three to four months.
Unfortunately, nether FICO nor the three credit bureaus are willing to reveal exactly what’s in the secret sauce that makes up your credit score – so the best we can do is make an educated guess.
That is why I say you should monitor your scores. If you close out your first two to three store accounts and see no drop in your scores, then move on to the low-limit Visa and MasterCards. If you see a small drop after that, I would wait three to six months before closing anything else out.
There are two exceptions to this advice:
If you have a card with a high annual fee, and you want to avoid paying it, then close it out first, wait several months, and then start closing the other accounts out.
Also, I am assuming that you are not carrying revolving debt on any of these accounts (other than your new balance transfer.)
Whatever you do, make sure that the total amount you owe on that balance transfer does not equal more than about 25% to 30% of the total amount you are able to borrow on all your cards.
Otherwise, you will see your score drop considerably because you will appear to be using far more of your available credit than you were before you closed your accounts out.
Regardless, leave the card you initially transferred the $20k to open. That should let you close out most of those smaller accounts without a problem. Honestly, I would probably keep both of those balance transfer accounts open even after you pay the full balance. At the very least, make closing them your final step.
I say this because there is occasionally a snafu with cards that have no pre-set limit. Some companies report the amount you charge each month as the limit, so those cards could look maxed out no matter what your balance is. If you keep the two balance transfer accounts open then you will not appear to be using too much of your available credit each month.
Basically, just take your time. Getting in too much of a hurry to close out these accounts is what will make your score drop. One or two low-limit accounts every three to six months is the safest way to do it.
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