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Guru Q&A: Should I Close My Credit Card Account?

FiLife User Question: I received a letter from Wells Fargo indicating that they are raising my rate on my credit card from 13.8% to 18.9%. I have always paid on time and believe this has to do with the current financial climate. They do state that if I “do not accept these terms, your account will be closed…and you may still pay off any existing balance on your account under the current terms.” My question is will closing the account affect my credit rating and would it be better to not close it, quit using the card and work on paying it down? Thanks.
-sterritt65

FiLife Guru Answer: Excellent question. Many borrowers are facing similar quandaries these days.

Credit ratings are highly dependent on specific circumstances, and these will determine how closing the card will likely affect your rating. Key factors include: how high your “utilization” on that card is (that is, what percentage of your credit line is being used); what your utilization of credit overall looks like; how many other cards you have and how large those credit lines are; and how old your Wells Fargo card is (and how that compares to the age of your other accounts).

Generally speaking, the more cards you have, the less impact closing the Wells Fargo card is likely to have.

Without knowing these specifics, I would advise you to do all you can to pay the balance down, rather than closing the card. If you close it, you may send a signal to Wells Fargo and other issuers that you are struggling to pay your bills. Such a signal is always worth avoiding, but doubly so in a skittish credit environment like this one.

If you follow up with as much of the specific circumstances mentioned above as you can, I will try to offer additional advice.

-Dave Hanson, FiLife Guru-At-Large

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