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Consumers facing interest rate increases may close accounts, though debt consolidation could also be an option
By Sam Craine on Feb 28th, 2010
Many card companies have raised interest rates and fees, which may bring up the ire of account holders.
Card companies increased fees prior to the February 22 effective date second phase of the Credit Card Accountability, Responsibility and Disclosure Act. They did so because the limitations put forward by the act regarding interest rates could affect card companies' bottom lines.
As a result, consumers may consider closing their accounts and paying off their debt at the old rate, a right given to them by the Credit CARD Act. Others, like a reader features in a column from Terry Savage for the Chicago Sun-Times, may close their accounts because of the anger they feel at seeing rates go up.
However, one reason why consumers may avoid closing an account is because it can have an adverse affect on their credit score. Savage said this is because one factor that plays into a credit score is how long a person has had credit.
Closing an account, Savage said, could also affect a person's credit utilization ratio.
"When you close an account, you lose that potential available credit line," Savage wrote. "So if you're carrying balances on other cards, the percentage of credit use could rise."
Consumers who are dealing with such credit problems may consider other options to deal with them. One may be debt consolidation, which can help pay off debt at a lower interest rate.
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