In the ever-changing world of credit cards, many of us are pretty aggravated with our credit card companies. They are increasing minimum payments, increasing interest rates, reducing credit lines, cutting rewards, and increasing fees.  It just makes you want to not agree to the new terms, pay the balance if you have one, and just close the card. DON’T! Closing that credit card may affect your credit score in three ways, impacting up to 65% of your credit score. 

The first factor is the length of time that you have had that card. The length of time that you have had a credit line is 15% of your credit score. It is typical for our oldest card to have the worst terms so you may be tempted to close it. Closing that card will shorten your history and lower your score.

The second factor is your debt to credit ratio, representing 30% of your credit score. Closing the card will reduce your available credit, which will raise the ratio. If you have other debt, your ratio will be lower with the card open. The lower the debt to credit ratio, the better.

The third factor is the variety of credit used. I have known people to close all of their credit cards and lose the variety of credit that is needed for a good credit score. Variety of credit accounts for 10% of the credit score, but closing the credit card will also trigger one or both of the other factors listed above.

What should you do?

•                    Pay down on the balance. The less you owe, the less interest you pay.
  
•                    Stay within your credit limit to avoid over-limit fees.
  
•                    Pay on time to avoid late fees.
  
•                    Use the card periodically and pay as you go. This will keep the company from closing the card
•                    Use your rewards as you accumulate them to avoid expiring reward credits.

These tips should help you to peacefully coexist with your credit card company, placing you in a good position to increase your credit score.