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Closing Credit Card Account May Damage Your FICO Score

Now here’s something I had never heard of before. Who would have imagined that closing a credit card account could have a negative impact on your credit score? One would think it would be a positive move, since you certainly would not be using that card to rack up more debt.

But, like the Wall Street crooks whose slight-of-hand maneuvers helped push the economy to the brink of disaster, I don’t suppose we should expect things like FICO scores to make a whole lot of sense either.

A FICO score is just another way of saying credit score. We’ve all seen the ads on TV or online that advertise services that allow you to find out what your credit score is. FICO score and credit score are pretty much synonymous.

Anyway, an piece in USA Today surprised me a bit when it was revealed that closing a credit card account might actually lower your credit score a bit. It appears that the extent of the damage is pretty minimal – perhaps a couple of points – but if you have been working hard to build yours back up after enduring some financial hardships, those hard-earned couple of points may mean a lot to you.

This may put some credit card customers between the proverbial rock and a hard place, since some credit card issuers are coming up with new ways to generate profits after new regulations were enacted recently that stripped away some of the sneaky tricks used by some of them to fatten their coffers.

One might just decide to pay a card off and then stop using it. It was the first option that popped into my mind. However, with the effort to raise new revenue, some issuers are now instituting annual fees and inactivity penalties (I think “penalties” is the best word in this case), which make it impossible to just stop using your card and avoid sending money to the card issuers.

This Discovery (hint, hint!) comes at an interesting time for me, since a credit card company has managed to recently land itself on my bad side. My intent is to pay it off as soon as possible and close the account.

For me, shaving a couple of points off my FICO score will not be a serious problem, and if it happens, I’ll just live with it. Despite new regulations designed to protect consumers, you can be sure the credit card companies will come up with innovative new ways to extract money from consumers.

Your best bet, if at all possible is to simply use your credit cards for purchases that you can pay off in full as soon as the bill comes in. Since having no credit cards actually diminishes your credit score, that seems like the best way to keep your score as high as possible and also stay out of troubling debt.

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