Many have the wrong impression that as they reduce their credit card debt, they should always close the credit card account after paying off the balance owed. This is not necessarily the way to go about eliminating debt since you should also have a secondary objective of increasing your credit score.
The reason is this…credit bureaus give high favorable marks to those that have good long-term credit history. So, if you close an account that you have had for a very long time once you pay off the balance, you also loose that credit history which could be working in your favor.
It could be, of course, that you really do have too many accounts and that some of them should be closed. If so, by all means close some of these accounts. But for the sake of optimizing your credit score, be sure to eliminate the credit cards that are more recent first.
Also, close that account only if you are sure you will not need the line of credit any time soon. If, after a few months, you discover that you need that credit for an unexpected event, applying for a new card could drop your credit score. Best to hang on to one or more cards – preferably with no balance – as a financial backup. Just be sure to keep up the good discipline of reducing your overall debt level by leaving those cards unused.
Check out some other tips to avoid when eliminating credit card debt.