If you're looking to impact your credit score, resist closing credit card accounts as a way of managing debt. While eliminating a line of credit seems like the most practical way to avoid overspending, it can actually backfire.
Your credit reports document your history of using credit. A longer credit history helps your credit score and is a positive sign to lenders who check your credit report. When you cancel an account, particularly an old one, you shorten your history and could lower your credit score.
Another factor in credit scoring is how much of the total amount of all your credit lines, also known as your available credit, you use. Creditors like to see low card balances, 35 percent or less of your credit limits, because low credit usage shows that you can manage your finances. Closing an account reduces your available credit; if you carry balances on your accounts, your credit usage percentage goes up, reducing your score.
Confused? Learn more about how credit scoring works.