ASK KIM
Don't Rush to Close Credit Accounts
by Kimberly Lankford

What is the recommended procedure for canceling a credit-card account that was never used? What about canceling one that is seldom used?

Some banks, such as BB&T, notify the credit bureau when the card is issued, so the information can appear on your credit report even if the card is never activated and never used. As a result, you should follow the same procedure for closing the account as you would for a card you use frequently. Write the creditor and request that the account be closed, says Maxine Sweet, vice-president of public education for credit bureau Experian. Many credits will accept a request to close an account by phone, but it's best to have a paper record.

You generally don't need to notify the credit bureau after you've closed an account. Creditors usually report that new status at the end of the payment cycle when they update their accounts with the credit-reporting companies, Sweet says.

If two payment cycles have passed and the change still hasn't shown up on your credit report, contact the creditor again. You also can ask the credit-reporting companies to send a dispute to the creditor on their behalf, but there's not much they can do if the account is still open. "If for some reason the creditor didn't close it in their records, when we check it with them, they will just confirm it as open," says Sweet.

To check your credit report, contact the three major credit bureaus at Experian, Equifax and TransUnion. You'll also be able to receive one free credit report from each of the bureaus per year at AnnualCreditReport.com This free offer is available only to people in Western and Midwest states right now. People in the South can get their free reports anytime after June 1, 2005, and people in the East and U.S. territories can get theirs after September.

Before closing any accounts, though, think carefully about what it might do to your credit record. Any missed payments will remain on your credit report for seven years, even if the account is closed. And accounts with no missed payments remain on your record for 10 years, which helps because they add to the depth of your credit history, Sweet says.

It's also a bad idea to close your account immediately before applying for credit, such as a mortgage. "Any time you change the status of an account, it causes most scores to be more negative for a short period, up to a few months, because you aren't exhibiting stable and, therefore, predictable behavior," says Sweet. The closure may also hurt your record over the longer run if it increases your debt-to-limit ratio -- the percentage of your available credit limit you've used -- and make you appear to be charged to the max.

But sometimes a little housecleaning doesn't hurt if the rest of your credit is in good shape and you don't plan on taking out any loans in the near future. "If you have a strong history with several accounts that have been open and active for several years, no late payments, and don't have extremely high utilization, then closing an account should not make a significant difference either positively or negatively," says Sweet. "It just means you had an account you didn't want or need, so you closed it."