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Followup to: You Tell Me: Is it better to get rid of the cards or keep them? | beingfrugal.net
Over at BeingFrugal there's a lively conversation about whether it's good to get rid of credit cards or not. One of the readers. (Jennifer - Lordsofthemanor.blogspot.com) said;
If you close an account before its paid off, often a company will increase your percentage rate to the maximum allowable by law. That means if you were to close an account it could jump up to 30%!!!!,..
Now I'm not trying to dispute Jennifer, but I'd never heard of this before. 
I've closed credit cards and it hasn't happened to me, but I'm only an individual.
So my question to the readers is;
Have you had a credit card company raise your interest rates after you close the card?? If so, how about sharing the circumstances.
I'd like to figure this one out. It's a VERY significant penalty to those getting out of debt if this becomes or already is a common practice, and should be made clear to everyone so they don't fall into this trap. The last thing someone getting out of debt wants to happen is to have one of their closed accounts go to the default rate.
How about some readers contributing their experiences on the subject 
And thanks to BeingFrugal and Jennifer for the inspiration and thought-provoking conversation.
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December 1st, 2007 at 11:13 am
I'm honestly not sure, as I've never had the courage to cancel my credit cards before I paid them off. Interesting question. I'd love to know the answer.
December 1st, 2007 at 12:45 pm
I don't understand why you care if they raise your interest rate on an account that has closed (and paid in full). Why would you close an account that has a balance though? It seems likely that if you did have an outstanding balance and closed the card, they would default you to the highest rate. They might see that as a sign at a future bankruptcy. I think you need to make the distinction about closing the account which has a balance or one that is paid in full.
December 1st, 2007 at 2:39 pm
Closing the account with a balance due used to be a recommended way to control your accounts, before it started affecting your FICO score. That's why se people still do it that way. If the cc company penalizes people, that should be widely known.
December 1st, 2007 at 3:33 pm
Odd, I had never thought of closing accounts before paying them off. I guess it would make sense that the company is not going to be as friendly if you have closed the account (or maybe they will work harder at getting you to open it again). I don't know. I have only closed accounts that I have paid off first.
December 1st, 2007 at 6:15 pm
Not sure, but I just cut my cards up, I didn't close the account. To be honest, I wasn't aware they would close an account with an outstanding balance.
December 1st, 2007 at 7:05 pm
I've closed accounts with balances, all they do is prevent you from charging more. Once you finally pay off the balance, it's completely gone.
December 2nd, 2007 at 7:32 am
I have heard of reason not to cancel your credit card from those financial tv shows. One is your credit rating. If you have a very high limit on your credit cards (IF your balance isn't anywhere near the limit), then canceling it negatively affects your credit rating. Something about some ratio. It sounds silly but the tv analysts said it was true. I think the best thing to do is call them and tell them never to raise your limit.
Two, I believe that once I was going to cancel a card and I called to cancel it and they said that it would negatively affect my credit if I canceled it before I paid it off. I only had a small balance, so I paid it off and then the next month I canceled it.
So there may be some element of truth to what you heard.
December 2nd, 2007 at 8:38 am
Heidi, thanks for commenting and welcome to Creditwithdrawal.com
It is true that closing an account affects FICO. That's because the ratio you're talking about is your utilized credit (debt) to available credit (credit limit) ratio. Anything over about 50% utilization starts to affect FICO.
By cancelling an empty card, you subtract that from the high end (available credit) and that skews the ratio.
The good thing, if you're not planning on using credit again :0 then it doesn't really matter what the credit score is.
December 4th, 2007 at 12:58 pm
I have heard of kind of the opposite - that if a credit card says they will raise your interest rate, close the account to lock in the old interest rate. I don't think they can raise it *after* it is closed. But maybe in the process they can.
I have never had it happen to me (and have never closed an account with a balance) so i don't know for sure.
December 4th, 2007 at 5:58 pm
@Paidtwice. From what I've read, the only thing the CC companies have to do is notify you. Even if you close the account, there's still the 'Universal Default' clause that can get you. I 'think' that's what this discussion is referring to (now that I think about it) but I'd still like to hear more opinions from people that this has happened to.
December 6th, 2007 at 9:49 am
The truth of the matter is that they can raise the rates any time they want for any reason.
They can one day just decide that they don't like you much--perhaps you call too many times to check your balance, or maybe you're paying a little too much each month; they can legally jack your rate.
It's called universal default.
The answer to solving the problem is to STOP USING CREDIT!!!
December 6th, 2007 at 10:06 am
@Kevin.
Amen!! Couldn't agree more.
Thanks for the comment!