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Credit-Card Accounts

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How to close them without hurting yourself

It seems the credit-card companies have all the power these days, in spite of the benefits of the new Card Act, which took effect in February. If you make the decision to close your credit-card account, assuming your credit is in good standing, it might have a small impact on your credit score. But that might not be enough of an impact to cause you to hang on to the card and pay an annual fee.

There could be two consequences of closing an account. Part of your credit score is based on your length of credit. So if you've had that card for many years, closing it could ding your score about 20 to 30 points, depending on whether you have other long-held cards. Even so, your score is likely to rebound within months. One way to protect yourself, if you are the one closing the card (instead of the issuer), is to send a registered letter to the issuer when closing the account. Then keep a copy of that letter so that if your credit score declines, you have proof you were the one who closed the account.

Another factor in your score is your debt-to-available-credit percentage. When you close an account, you lose that potential available credit line. So if you're carrying balances on other cards, the percentage of credit use could rise. In that case, advises Bill Hardekopf of LowCards.com, you might want to apply for a different, better card before you cancel the other card. That will keep your percentage figure low.

All of this advice assumes you can easily pay off the balance and close the account. For those who are trapped by big balances, there is another option. Under the Card Act, you can "opt...