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Dr. Don Taylor, CFA, Bankrate.com advice columnist Canceling credit cards and your credit score

Dear Dr. Don,
I would like to cancel department store credit cards that I no longer use. Should I cancel one or more at one time or space the cancellations over a period of time? Will canceling these cards have an adverse effect on my credit score?
-- Barbara Billings

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Dear Barbara,
First, ask yourself what your goal is in canceling these accounts. Are you trying to avoid the temptation of using the cards, looking to improve your credit score or looking to get out from under any annual fees charged by the card companies?

Your credit score is based on the information in your credit report. The most commonly used credit score is provided by Fair Isaac Corp., and is known as the FICO score. The breakdown by component is provided by Fair Isaac on its myFICO.com Web site and shown below:

What makes up your credit score?
Credit score chart

Your credit score will still take into account the age and status of these closed accounts, but not their credit limits. Closing accounts will affect the amounts-owed calculations that look at credit lines available versus credit balances. So, canceling a card, particularly one you've held a long time, can slice a few points from your credit score.

Many department store charges are now affiliated with a national credit card so they aren't viewed differently from a MasterCard or Visa. If you're going to close accounts, start with the department store cards you don't use that are not affiliated with a national card provider.

The myFICO site specifically states, "Don't close unused credit cards as a short-term strategy to raise your score." If your goal is a quick pop in your credit score, closing these department store accounts isn't likely to help you achieve that goal.

Take a look at your credit reports and get a sense of the length of credit history on the accounts you want to keep. The Bankrate feature, "How to get your free credit report" explains how to get the one free credit report you're entitled to each year from each of the credit bureaus. You can also use Bankrate's credit score estimator to get a sense of where your credit score is, if you don't know already. If you decide to buy your credit scores, the credit bureaus have simulations that can show you how your actions will change your credit score.

If you plan to be in the market for a loan in the near future, then the obvious recommendation is to sit tight and not cancel these accounts. If you don't expect to need credit over the next one to three years, and you have a relatively long (and good) credit history on the national accounts you plan to keep, as well as balances totaling no more than 40 percent of your remaining credit lines, I don't see the problem in canceling these department store accounts all at once.

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "financing a home," "saving & investing" or "money."

Bankrate.com's corrections policy -- Posted: Feb. 16, 2007
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