Did you know that closing credit card accounts will most likely lower your FICO credit score?  It seems counter-intuitive at first, after all – why should reducing the amount of credit cards you have in your name cause your credit score to drop?  With less credit cards to use, you have less temptation to overspend, right?

Maybe so, but that’s not the way the credit scoring company looks at it!  What happens when you close a credit card account?  It reduces the amount of available credit you have.  When you decrease the available credit you have, you immediately increase the amount of debt you have in relation to the amount of credit you have available (called debt utilization percentage).  The higher your debt utilization percentage (the more credit you are using in relation to how much you have available to use) the lower your credit score.

What if you have several credit card accounts and you just don’t want all of them open and accessible – either for your own reasons or to reduce your risks for credit card fraud?  Can you close some of those credit card accounts without taking a hit to your credit score?  Here’s what to do:

• Pay off your credit cards and loans; or pay them down as low as possible.
• Check your credit report to make sure they are being reported with the low balances or that they’ve been paid off completely.  (if not, contact the creditors to have them update your credit report)
• Close one credit card account at a time, and view the affect on your credit score 60 to 90 days later.  If the affect is minimal, close another one.  If you start to see a drop in your FICO credit score due to closing accounts, wait a few months and make all of your payments on time – then close another credit card account.

Never close multiple credit card accounts all at the same time, or you risk increasing your debt utilization percentage too much and causing a big jump in your FICO credit score which will cause you credit problems for a long time.