I’m not sure how or when this idea spread, but at some point in the personal finance online world, it became a generally accepted fact that you should never close a credit card account because it will hurt your credit score. I’ve seen this idea pop up in numerous online forums and in the blogosphere from very knowledgeable posters.

To be fair, there is certainly merit to this position. I would even go so far as to say that it’s a useful rule of thumb. But to paint it as a black and white issue, as an absolute not to be questioned, is where I take issue. There are circumstances where I would argue that accounts should be closed. There are also times when closing an account could actually help your score.

When should an account be closed?

To me, an obvious instance when an account should be closed is if it has an annual fee and the account is one that you could live without. Why pay the fee for a card you will never use? If the only reason you would keep the account open is for your credit score, that is not a compelling enough reason. You should keep your credit score high enough so that you can profit from it, and not maintain it for its own sake. Besides, as long as you have other lines of credit that you maintain responsibly, you’ll eventually recover from any short-term hit to your credit score that closing the account would cause.

How could your credit score be hurt by leaving an account open?

According to this booklet from myFICO (page 12), one of the factors that weighs into your credit score is the average age of your accounts. Consider the very simple example where you had 10 accounts, 5 of which were open for 10 years and 5 of which were open for 5 years. If you closed a few of your accounts that were open for 5 years, that would obviously push up the average age of your accounts and presumably help your score.

Another nebulous factor in your credit score is the “mix” of credit that you’re using (page 14 of the booklet). That is, your score considers what types of credit accounts you have and how many of each. Your score also looks at the total number of accounts you have. How adding or subtracting accounts will affect your score in this respect is very murky.

I have to wonder what correlation exists between closing a credit card account and your likelihood of repaying a debt. If there is no such correlation, then one would think that the credit scoring model should not be penalizing anyone merely for closing an account.