Don’t close any accounts until you understand the consequences of your actions. There may be times when you should close an account, but there are several things to consider before taking this action.
Credit history is a very important part of credit scoring. The longer the history, the more it will count toward a better credit score. Even if you don’t use the card, keep it active by buying a small item each month and then pay it off at the end of the month to keep the history alive and working for you.
A new account with “derogatories” could be closed and increase your score, because a new account affects your credit score seven different ways. A new account could be considered “new” for up to four years.
If you have too many new accounts, then closing one that is rarely used could be helpful in increasing credit scores. Refer to the Balancing Accounts section for more details. For the time being, look at keeping an equal number of revolving accounts with installment accounts.
Department stores are notorious for offering a discount when you sign up for their credit card in the checkout line. Be cautious when tempted to accept such offers as it can cost you points, and may not save you any money at all. Let’s give an example…
You have a $100 purchase at XYZ Company and they offer you a store credit card at 17% interest. They will give you a 10% discount if you sign up for the credit card right there. They will charge the full amount, then give you the discount and save you $10 immediately. You accept the offer and feel good about saving $10 on your purchase. You then get the first bill and notice you have been changed $1.27 in interest charges. If you pay it off immediately, you may actually end us saving a little money on your purchase and positively impact your credit score. However, if you don’t have the cash, then you pay the minimum and your savings from the sale is reduced to $8.73. If you are late, then there’ll likely be an expensive late fee assessed, and your interest rate may be increased to 23%, 29% or 33% - making things even worse. The moral of the story is that saving money through a promotional credit card offer can become quite expensive, if you aren’t careful.