credit scoring

Dear Liz: I would like to know how to close credit card accounts and not get a bad credit rating for doing so. We are trying to improve our credit after filing for bankruptcy seven years ago.

Answer: If you’re trying to improve your credit, then avoid closing credit accounts. Doing so can’t help your scores and may hurt them. Credit-scoring formulas are sensitive to how much of your available credit you’re using. The formulas like to see a wide gap between your credit limits and the amount you charge, both on individual cards and in the aggregate. When you close an account, you reduce your available credit, which narrows that gap and can ding your scores.

If you want to speed up your recovery from the bankruptcy, continue using the cards lightly but regularly and paying the balances in full every month. Make sure to pay all your bills on time so that a skipped payment doesn’t undo all the progress you’ve made. Review your credit reports and dispute any errors, including accounts that were included in the bankruptcy but are still showing up as active debts.

That doesn’t mean you can never close unwanted credit accounts. You just don’t want to do so now, or when you’re in the market for a major loan. You can close an account or two once your scores are in the high 700s on the 300-to-850 FICO scale and you don’t plan to apply for credit in the near future.

Dear Liz: My spouse signed up for a store credit card to receive a discount on a large purchase. As she has no strong interest in maintaining a line of credit there, is there a simple way of discontinuing this account without affecting our credit scores, given that we may apply for a mortgage in the near future?

If not, is it critical we maintain some frequency of use on this account?

Answer: First, let’s correct a popular misconception that marriage somehow combines your credit records. Assuming she applied for the card in her name alone, this account won’t show up on your credit report or affect your scores.

Should you apply for a mortgage together, however, her scores could affect the interest rate and terms you get. Opening and closing accounts can ding scores, so it’s best to avoid both when you’re in the market for a major loan.

Issuers vary in their policies on closing inactive accounts, so it’s hard to predict how much activity would prevent the card from being shut down. Typically, though, a small charge every two to three months is enough to keep an account open.