Reasons You Shouldnt Close A Credit Card
Is closing a credit card going to majorly damage your credit score? Not necessarily, but that doesnt mean its always your best option. Here are five reasons you shouldnt close a credit card:
Why You May Not Want To Close
- Youre getting ready to apply for a loan. Closing an account right before applying for a new line of credit may result in a higher interest rateor even not being approved at all.
- Its one of your oldest accounts. Since the length of your credit history plays an important part in determining your overall score, closing an account youve had for many years will have a bigger impact on your score than closing an account youve only had for a short time.
- You dont have very many credit accounts. Canceling a credit card could hurt your ratio, meaning that any debts you hold will take up a larger percentage of your available credit. Your score could also be penalized if closing your card leaves you with just a few avenues of credit .
When To Close A Credit Card
To reiterate: All things being equal, its best to keep accounts open. This is not to say there arent situations where selectively shutting them down makes sense.
Those situations include:
- Youre getting divorced and you share accounts with your future ex-spouse.
If your trigger is/are high annual fees and/or high interest rates, check with the issuer about keeping your account open with a low- or no-fee option most awards cards have them and/or reducing your interest rate. Explain that if you cant come to an accommodation, youll have to close the account. Most companies want to keep your business.
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How To Cancel A Credit Card
If youve decided that canceling a credit card is your best option, you need to be thorough and deliberate. After paying your balance in full, get specific account closing instructions from the cards customer service department. The operators will likely try to persuade you to keep your account open. Be polite, but firm. And, confirm with the operator that your account will indeed be closed. Then verify the account was actually closed through email and another call.
The bottom line is that closing a credit card account could hurt your credit score. The key is balancing responsible credit management and the desire to maintain or improve your credit score. Understanding your specific credit situation, including your spending habits, utilization ratio and low risk cancellations can help you make the right decision.
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What Should Your Average Account Age Be
The longer your credit history, the more responsible youâll appear to lenders and issuers. The longer, the better, but a general account age you should aim for is seven years.
Seven years is often recognized as a reasonable amount of time to establish a good credit history if youâre just starting out. When trying to close your oldest account, you may want to wait until your other accountsâ ages average out to seven years.
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Keeping An Eye On Your Credit Can Help
The decision to close your credit card account is a personal one. But routinely monitoring your credit score can help you make a more informed decision. is a completely free tool that allows you to monitor your VantageScore® 3.0 credit score. Using CreditWise to keep an eye on your credit wonât hurt your score. And itâs free for everyone, not just Capital One customers.
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Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
Will Buying A House Increase My Credit Score
A mortgage is likely to boost your credit if you make payments as agreed. Most opt for a mortgage, or a home loan. Like all major lines of credit, a mortgage will appear on your credit report. This is probably a good thing: A mortgage can help build your credit in the long run, provided you pay as agreed.
How long does it take for a paid off mortgage to show on your credit report? When you pay off a credit account, the lender will update their records and report that update to Experian. Lenders typically report the account at the end of its billing cycle, so it could be as long as 30 to 45 days from the time you pay the account off until you see the change on your credit report.
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Check How Your Credit Score May Be Affected
If you want to gauge how closing a credit card may affect your , consider online score simulators, such as from Capital One. For instance, CreditWise’s simulator allows you to see how taking certain actions, such as closing a credit card or paying off a balance, might impact your credit score.
When I simulated how closing my oldest credit card would affect my credit score, it only showed a one point decrease from 808 to 807. Keep in mind, the exact effect on your credit score can vary.
Is It Bad To Get A Credit Card And Not Use It
If you havent used a card for a long period, it generally will not hurt your credit score. And if the card is one of your oldest credit accounts, that can lower the age of your credit history, bringing down the average age of the accounts in your report and lowering your credit score.
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Why did my credit score drop 40 points after paying off debt?
Why Did My Credit Score Drop After Paying Off Debt? Having a mix of credit cards and loans are often good for your credit score. While paying off debt is important, if you only have one loan and pay it off, your score might drop because you no longer have a mix of different types of accounts.
What happens when a collection is closed? Even when a collections account is closed, it can remain on your credit report for up to seven years from the date the account first went delinquent. If youre wondering whether you should bother to pay off and close a very old collections account, paying it will start a new statute of limitations.
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How Does Closing A Credit Card Affect Your Credit Score
Your credit score might be hurt if closing the card changes your credit utilization ratio. Credit utilization measures how much of your total available credit is being used, based on your credit reports. The more available credit you use the worse the impact will be on your score. Aim for a ratio of around 30%.
Check Your Credit Before Closing An Account
Closing a credit card account can make sense in certain circumstances, but it’s important to understand that it can adversely affect your credit score. Before your close your account, consider taking a look at your to see where you stand and make sure that closing the account won’t leave you with a credit history that’s too thin or too new. While the negative effects of closing a credit card account are usually temporary, it might be worth keeping a long-standing account open if you’re able to.
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Pay Off Your Outstanding Balance
If you are closing a credit card account with an outstanding balance, you need to pay off or transfer your balance first. Closing a credit card with a balance doesnt actually work because you cant fully close a credit account if you still owe money to your lender. You have to either pay off your debt or transfer the balance to one of todays best balance transfer credit cards if you want to close a credit card with an outstanding balance.
If you are closing a credit card that has a $0 balance, you can skip this stepbut wait at least one full statement cycle after your card reaches a $0 balance to ensure that you arent forgetting about any final charges or interest that might come due.
Do Banks Close Inactive Credit Card Accounts
Banks can and do close inactive accounts. So make sure you keep your accounts active to avoid potential damage to your credit score. Unfortunately, you may get a letter in the mail saying the company is shutting down your credit card due to inactivity if you dont use a particular card for an extended period of time.
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Ways To Safely Close Your Credit Card
Closing a credit card may seem simple enough. But before you break out the scissors to snip your card in two, here are some things to consider:
- Pay down your balance first: While you can close a credit card with an active balance, you may want to consider paying down your balance first. Even if you close your account, youâre still responsible for any remaining balance or interest and fees that might be charged. Plus, paying down your balance first will help keep your credit utilization under control. And that can help minimize impacts to your credit score.
- Double-check your payoff amount: In some cases, the payoff amount for your card may be more than just the statement balance because of fees and interest. Be sure you check with your card issuer to confirm what you owe.
- Get confirmation of your cancellation: With some issuers, you can simply sign in to your account in order to close it. Or you may be able to call your card issuer to make the request. Either way, consider getting a confirmation in writing. That way, you have a permanent record of it in case anything gets called into question.
- Check your credit report: After closing your card, you might also want to check your credit report. You can get free copies of your credit reports from all three major credit bureausâvisit AnnualCreditReport.com to learn how.
If you still have questions about closing your account, you can also check your cardholder agreement for more details.
When Canceling A Credit Card Makes Sense
There are a few situations in which it may make sense to cancel a credit card. For example, if:
- The card has a high annual fee and the benefits aren’t worth it to you
- The interest rate on the card is high and you need to carry a balance
- You are struggling to manage your debt load and are having trouble resisting the temptation of living beyond your means with the card
- You want to get rid of a bare-bones card, like a student card or secured card, in exchange for a regular or rewards card
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Does Closing A Credit Card Affect My Credit Score
First off, itâs important to understand that you donât have just one, universal score. Each lender will give you a score when you apply for credit, and they all have their own way of calculating it. Typically, theyâll take into account information on your application form and â as well as any data they hold on you if youâve been their customer before. So, cancelling a credit card may impact your score, but it really depends on the lender.
One reason your score may be negatively affected is that your overall credit utilisation may increase. Credit utilisation is the percentage you use of your . For example, if you have an overall credit limit of £2,000, and you use £1,000 of it, your credit utilisation is 50%. But if you cancel a card and your limit is reduced to £1,500, youâll be using 75% of it.
When deciding whether to approve you for credit, lenders take into account the limits available to you â not just what you owe â to judge whether you can cope with new credit. As a general rule, they like to see you keeping your credit utilisation below 25%.
However, keeping long-held, well-managed credit accounts can improve your score with some lenders. This shows youâve been a reliable borrower in the past, which may suggest youâre likely to repay other lenders too.
You can get a good idea of how lenders may see you by checking your free Experian Credit Score.
Choosing To Keep Your Card Open
Just as there are reasons to consider closing your credit card, there are also good reasons you may decide to keep it open:
- Helping manage your credit utilization: If the card youâre thinking about closing has available credit, keeping it open could help keep your credit utilization ratio lower.
- Keeping your credit file robust: If your credit card is one of only a few sources of credit, closing the account could give you a thin credit file. This means you may not have enough credit history to be scored. In this case, you may want to keep your card open to continue building your credit.
- Maintaining a mix of credit types: Your credit score can also benefit from having more than one credit type. This can include things like revolving credit, personal loans or mortgages. If your credit card is your only form of revolving credit, you may want to keep it open to diversify your active credit.
- Preparing to make a big purchase: If youâre planning to purchase something like a house or a car, it helps for your credit to be at its best. Especially when it comes to applying for a loan. In this situation, it could be in your best interest to keep your credit card open for the time being.
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Follow Up With A Certified Letter
After you cancel your credit card by speaking with a customer service representative, follow up your request with a certified letter to your credit card company. Restate your decision to cancel your credit account and request that they send you a letter confirming that your credit card has been canceled and that the account balance was $0 at the time of cancellation.
When You Should Close Unused Credit Cards
Although it’s obvious that closing an unused credit card can hurt your credit score if you’re not careful, some circumstances make it worthwhile anyway.
One major reason for closing an unused credit card is if that card comes with a pricey annual fee. That’s not to say that all cards with an annual fee are bad — they can be quite valuable when you make the most of them. But if you’re not using the card, why are you paying for it?
Another time you may consider closing an unused credit card is if you simply don’t want the temptation it represents. Every credit card you have is more you could take on. If you struggle with managing debt, you may want to eliminate any cards you don’t absolutely need.
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How Closing A Credit Card Account May Impact Credit Scores
Reading time: 2 minutes
Highlights:
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Closing a credit card could change your debt to credit utilization ratio, which may impact credit scores
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Closing a credit card account youve had for a long time may impact the length of your credit history
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Paid-off credit cards that arent used for a certain period of time may be closed by the lender
Youve paid off your credit card, and youre wondering if you should close the account – and whether that might impact your credit scores, for better or worse. The answer depends on your unique credit situation.
Before you close a credit card account, consider the following:
- Closing a credit card could lower the amount of overall credit you have versus the amount of credit you’re using , which could impact your credit scores. You can calculate your debt to credit utilization ratio by adding all your available credit and all the debt you owe on those accounts. Divide the total debt by the total available credit. Creditors and lenders like to see a lower ratio of how much debt you have compared with how much available credit you have.
- Closing a credit card account youve had for a long time may impact the length of your credit history, which is another factor generally used to calculate credit scores. In general, creditors like to see youve been able to properly handle credit accounts over a period of time.
- If you have a paid-off credit card you haven’t used in a certain period of time, it may be declared inactive and closed by the lender.