One of our readers, Leigh, sent us this question:

If I have decided to close an account, what is the optimal length of time to leave that account open before I give it the heave-ho?

I have a cc with a TERRIBLE interest rate that I just opened 5 months ago, the lender drives me crazy, and I will never use the card again. Someone told me that it is better to leave an account open for 12 months before closing it, and that this will not hurt your credit score. Is it true that your score will be hurt if you close an account that you’ve only held open for a few months?

Thanks for your question Leigh!

The truth is, closing a credit account will lower your credit score no matter when you do it. Even if you wait.

The average age of your credit accounts is roughly equal to fifteen percent of your FICO score. When you close a credit card, this is the percent of your score that is affected. If you have older credit card accounts that are still open, then closing out this new account will have very little impact on your score.

Now, closing this account will also affect a couple of other things too. If this card has a high limit, you may not want to close it out - just stop using it. Your debt - to - credit ratio (how much of your credit you have used, vs. how much you could use) is 30 percent of your FICO score.

So, if this card has a high available balance that you are not using, or you are running close to your limits on other cards, then it makes the most sense to leave it open.

Lastly, new credit counts for ten percent of your FICO score - and this is probably the reason why your friend suggested that you wait a year to close the account. However, if you are handling your credit correctly, then you do not need to be afraid to close the account.

The better you handle your credit, the less it will hurt you to close out a credit account. If you carry a balance, or charge more than 25-30% of your available credit each month, then it will hurt your score to close this card out. If you are not doing those things, then go ahead and close it out because your score will recover in a few months.

There are quite a few die-hard FICO fanatics who will disagree with me telling you to close this account out. Yes, it will hurt your score no matter when you close it. But if they are driving you nuts, then just make a calculated decision. As long as you are doing the right thing with the rest of your credit accounts, then it will not hurt (long term) to close this one account out. Just give your score two or three months to raise back up before you apply for a new loan.

If you are making any of the common mistakes listed above, then wait to close the account until the balances on your other credit cards are lower.

You can read more about how your FICO score is calculated in our article “The FICO Score Breakdown.”

Thanks again for your question!

We also had another reader, Jose, send us this question:

Dear Sirs: I just triying to get a credit card because I close all my credit cards just because I enjoy a program to get down my my accs. So from now throuht the next 4 years I cant have credit, I am a person that I want to pay my bills on time, but I went in a situation that I have to enjoy this program, I am happy because from now they take action about my accs. But now I need A credit card because you need to have one to any emrgency,to rent a car,etc,etc,But I dont know where I can get one with my credit on the ground. Thank you, Sicerily; Jose Berrios.

Thanks for your question Jose!

You need a secured credit card. This means that you send in money (usually $200 - $300) to open up a credit account. You will eventually get the money back, but in the beginning it will be held in a savings account for you, and the credit card company will use it to pay your bill in the event that you do not pay as agreed.

Secured credit cards are wonderful things for people who are rebuilding their credit. They are not scams, you really do get your money back. Also, they will report your good monthly payments to all three credit bureaus and help you raise your credit score.

The alternative to a secured credit card is a “bad credit” credit card. These credit cards usually have high yearly fees, and you normally still have to send in $250 in fees (which you do not get back!) just to open up the account. In your situation, you will be far better off with a secured credit card.

For some more information on secured credit cards, you can read our article “How to tell if you need a secured credit card.” or check out our reviews of some of the best secured credit cards on the market.

Secured credit cards work just like normal credit cards except for the initial deposit. This means that you can use them to rent a car, or to set aside for an emergency just like a normal credit card. Truthfully though, it is always best to have an emergency fund at your bank for emergencies, and not just rely on a credit card. If something happened, you would have both things to fall back on, and you would not have to worry.

If you are not comfortable with a secured credit card, you could also consider a prepaid credit card.

Thanks for your question!

Have a question for us? Leave a comment below!

Keep Reading:

• What to Do If You Closed Out Too Many Credit Card Accounts
• How to Raise Your Credit Score In 7 Easy Steps
• How Will Closing Multiple Credit Accounts Affect My Credit Score?

This entry was posted on Tuesday, October 7th, 2008 at 9:45 am and is filed under Credit Card Debt, Credit Reports and Scores. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.