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Question:


Should I close the credit accounts that I never use?
-PrettyLady


Answer:


That could be unwise. One of the key bits of information used by reporting agencies to determine your credit scores is the amount of outstanding debt you have as a proportion of the total amount of credit available to you. The lower the figure is, the better your credit scores are likely to be. If you close an unused account, then the top number stays the same, but the bottom number will decrease by whatever the credit limit was on that account.
 
Say you’ve got three credit cards with limits of $5,000 each, and you owe $2,000 on each of two of the cards and nothing on the other. That means your debt is $4,000 on a limit of $15,000, or about 27 percent of your available credit. Close the unused account and you still owe $4,000, but your limit has fallen to $10,000. You owe the same $4,000, but now it’s 40 percent of your available credit.
 
If you’re bumping up against the credit limit on the cards you use, then it could make sense to take an unused card out of mothballs to spread the debt out more evenly. The fact that you’re not doing that suggests that the interest rates on your unused cards are considerably higher than the ones you do use, so maybe you’re better off as you are.
-Conrad de Aenlle



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