What to Do If You Closed Out Too Many Credit Card Accounts

One of our readers, NoJobNow, sent us this question:

I was recently laid off and have paid off all my credit cards & collection accounts to clean my credit.
The only open accounts I have are 06′ Visa $1000 limit that is with my credit union, 07′ Target w/$200 limit (both w/no annual/monthly fees & low interest rates), and a 07′ $21K auto loan.

I closed an 06′ Merrick Bank acct that had $1150 limit w/$4 monthly fee, 06′ HSBC w/$300 limit and 02′ Capital One w/$600 limit-Low limits but high rates!

Now I’m seeing all these articles about closing accts will drop my score and am afraid because I was trying to get my credit right and not be in serious debt w/o a job!

I’m planning on a career change and will be applying for a student loan soon. Should I go back and re-open these accts or am I screwed in attaining a decent credit score and/or interest rate on my student loan? Please advice! Your help is greatly appreciated. Thank you in advance.

Thanks for your question!

The truth is, since you have already closed out your accounts the damage is done, and your score has dropped some. Re-opening the accounts is probably not a good strategy either. I say this because:

• Most credit card companies will want you to fill out a new application rather than re-opening your old account. This will result in an inquiry on your credit report which will lower your score.
• If you end up opening a new account rather than re-opening your old account then the average age of your accounts will drop even further – lowering your score.

It never hurts to ask your credit card company about it though. Just because most of them do not re-open accounts does not mean that every company operates that way. The only one of your old accounts that would really be worth trying to re-open would be your old Merrick credit card because it had the highest limit.

The best thing that you can do for your credit score right now is to not carry a balance on any of your cards. Go ahead and pull your credit score before you apply for your student loan – that way you know where you stand going into the borrowing process.

After you get your student loan you may want to wait several months and run your credit score again. If your score is high enough for you to get a decent offer of credit (low interest rate, low yearly fee, etc.) then go ahead and open up one more credit account . Do not use it though, just stick it back for emergencies. Having three good accounts with no revolving balances will repair your credit pretty quickly.

When you go to apply for that third card, keep this in mind:

• Do not get a card with no pre-set limit – They will often report the amount you charge each month as the limit on the card, so that does not help your debt – to – credit ratio at all.
• Get a card with a major lender (not your credit union) – Try HSBC Bank, Citi, or Chase. This will give you a better mix of credit and will boost your score a little.

Hope this helps! Thanks again for your question.