A 2008 survey by the Federal Reserve Bank of Boston revealed that the average American credit card holder has 3.5 cards. People who choose to close some of those accounts may do so even if they have a balance on all of their cards. They need to understand the process and how "closed" is defined for accounts that still have a balance due.
Definition
A person can technically close a credit card account by stopping the ability to make any further purchases on that account, but Dr. Don Taylor, Ph. D., a columnist for the Bankrate financial website, explains it is not completely closed until the balance is paid in full. A statement is generated every month until the final pay off, and payments show up on the account holder's credit report. Banks sometimes close accounts that still have a balance if the consumer regularly pays late or skips payments.
Time Frame
Closed credit card accounts that were paid as agreed remain on a consumer's credit reports for ten years, according to Dr. Taylor. They have a positive influence on the credit score for that entire time, although their influence diminishes over the years. A closed account with delinquent payments stays on the reports for seven years.
Process
Banks will often close a credit card account over the telephone, although the representative often tries to convince the consumer to keep the account open. Sometimes the bank will offer a lower interest rate, a rewards program or other favorable terms. The company will close the account if the consumer insists and send a letter confirming the closure. The request can be sent in writing if the account holder prefers to have a record of it.
Alternative
Closing credit card accounts can hurt a person's credit score. The FICO credit score company explains that the type of accounts and length of time they have been open has a positive influence on the score. Closing an older account affects this area. Consumer advocate Clark Howard recommends putting credit cards aside rather than closing the accounts. Pay them regularly until the balance reaches zero, then make an occasional small purchase and pay it off quickly so the account will show regular positive activity on your credit report.
Warning
Dr. Taylor warns against closing credit card accounts and leaving them unpaid. The banks may eventually charge them off, but this does not remove the consumer's responsibility for the debts. The delinquency and charge-off pull down the credit score, and the bank may sell the debt to a collection agency. The debtor may even be sued for the debt until the statute of limitations runs out.
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