When starting your credit repair journey you may tempted to close credit card accounts, especially if the credit card has negative entries on it such as a late payment. This is a bad idea. It’s actually better for your credit score in most cases if you keep the account open because a big part of your credit score depends on how much credit history you have. In other words, by keeping credit cards open, you’re adding credit history to your credit profile –even if it has negative marks. It’s much better to try and remove late payments from your credit cards.
I made this mistake when I started my own credit repair journey, actually. Closing credit card accounts seemed logical to me at the time. I thought, “Ok, I have a bunch of credit cards, I have paid them off, and I don’t want to be tempted to use them again so I better close these accounts.” I also said to myself, “Hey, this will improve my credit score too! The magic FICO credit score generator will see that I am acting responsible by closing credit card accounts after I paid them off!” This couldn’t have been farther from the truth. Three months after I closed 3 out of 4 of my credit cards, my credit score dropped.
Remember: your credit score is largely based on how well you manage open credit accounts. If the account is closed, there is nothing to go off of except the account history before you closed the account (which is probably bad if you closed the account). An excellent credit score reflects that the individual has had long term, well-managed credit accounts. Also, while it is true that too many open credit card (revolving) accounts can hurt your credit score, the key is to shy away from opening too many accounts, not closing the accounts. Never close an open credit card account –it can hurt your credit score.
Attempt to reopen credit cards
Another technique you can try if you have already closed a credit card account is to contact the creditor and ask if they will consider reopening the account. You can be certain that they will pull your credit report, so this usually only works if you have showed some improvement recently. You can also follow the steps I outline in my post 5 Amazingly Simple Techniques to Optimize Your Credit Score to make sure your score is optimized before you ask them to reopen the account.
Here is how I got Capital One to reopen my account after I paid off the balance and closed the account: First I got two other credit cards (one secured and one gas card). I kept up on the payments for one year. After the one year was up, I called their customer support and asked if they would “kindly consider reopening my account based on the recent steps I have taken to improve my credit score and the accounts I have in good standing as of right now.” They checked my credit report and a few weeks later I received a new Capital One credit card with a $500 limit.
Take home points:
- Never close credit card accounts that are in good standing.
- Avoid bad credit by not opening too many credit card accounts. (2 or 3 credit cards is plenty)
- If you can’t control your spending it’s better to throw away the credit card than to close the account.
- Attempt to reopen closed credit card accounts by contacting the creditor after you have proved that you can be trusted.