You might be curious about the effect closing an old, well-maintained credit card will have on your credit score. The way credit scores are determined can definitely seem complex and confusing. Ultimately, even seemingly innocuous actions, like closing an account you haven’t used in years, can negatively impact your score.
Continue reading to find out which credit factors are affected when you close an account, how to safely close your credit card account, and some other options to think about before you decide to permanently close your account. + Show more – Show less.
Closing credit cards with zero balance can be a tempting move especially if you’re not actively using them. However, before you hit that “cancel” button it’s crucial to understand the potential impact on your credit score and overall financial well-being.
The Impact of Closing Credit Cards on Your Credit Score:
Closing a credit card can have both positive and negative consequences for your credit score:
Negative Impact:
- Reduced Credit Limit: Closing a card reduces your overall available credit limit, which can increase your credit utilization ratio. This ratio measures the percentage of your available credit that you’re currently using. A higher utilization ratio can negatively impact your credit score.
- Shorter Credit History: Closing an older credit card can shorten your average credit history, which is another factor considered in credit score calculations. A shorter credit history can also negatively impact your score.
- Loss of Positive Accounts: Closing a card with a good payment history removes a positive account from your credit report. This can also lower your score, especially if you have a limited number of open accounts.
Positive Impact:
- Reduced Temptation: Closing a card can help you avoid the temptation to overspend, especially if you’re prone to impulsive purchases. This can ultimately improve your financial health.
- Reduced Annual Fees: If the card has an annual fee, closing it can save you money.
- Less Risk of Fraud: Closing a card you don’t use reduces the risk of it being compromised and used for fraudulent activity.
When to Consider Closing a Credit Card:
- You have multiple cards with high credit limits: If you have several cards with high credit limits, closing one with a zero balance might not significantly impact your credit utilization ratio.
- The card has an annual fee: If you’re not using the card and it has an annual fee, closing it can save you money.
- You’re concerned about the risk of fraud: If you’re worried about the card being compromised, closing it can reduce the risk.
- You’re consolidating your debt: If you’re consolidating your debt onto a single card, closing other cards with zero balances can simplify your finances.
When to Keep a Credit Card Open:
- The card has a long history: Keeping a card with a long history open can help improve your average credit history and overall credit score.
- The card has a low credit limit: Closing a card with a low credit limit can have a more significant impact on your credit utilization ratio than closing a card with a high limit.
- The card offers valuable rewards or benefits: If the card offers rewards or benefits that you use regularly, it might be worth keeping it open.
Alternatives to Closing a Credit Card:
- Keep the card open but use it occasionally: Make a small purchase on the card every few months and pay it off in full to keep the account active.
- Transfer the balance to another card: If you have a balance on a card with a high interest rate, consider transferring it to a card with a lower rate.
- Ask for a credit limit decrease: If you’re worried about overspending, ask your credit card issuer to lower your credit limit.
Ultimately, the decision of whether or not to close a credit card with zero balance is a personal one. Carefully weigh the potential impact on your credit score and overall financial well-being before making a decision. If you’re unsure, consider consulting with a financial advisor for personalized guidance.
Remember, responsible credit card management is key to maintaining a healthy credit score and achieving your financial goals.
Reasons to cancel a credit card
There are a few situations where closing an account can make sense even though it could lower your credit score.
Here are a few:
How to cancel a credit card without damaging your credit score
Even though there’s no assurance that canceling a credit card won’t negatively affect your score, there are things you can do to lessen the damage and close your account properly. Below, we list our tips for closing your card and protecting your credit score.
Top tips for closing a credit card without hurting your credit score:
Should I Close a Paid Credit Card Or Leave It Open?
FAQ
Is it better to cancel a credit card or keep a zero balance?
Is it better to cancel unused credit cards or keep them?
What happens if I close a credit card with no balance?
Does having a credit card with a zero balance hurt your credit?
Can you close a credit card with a zero balance?
Should you close your credit card with a zero balance or can you close it with a balance. Closing a credit with a balance is possible, however it can affect your credit score, especially if the remaining balance continues accuring interest or late fees and is unresolved.
Can a zero balance affect my credit score?
Unless you carry a zero balance on all your credit cards, this change leads to a higher credit utilization ratio which can negatively impact your credit score. This is especially important if the increase in your credit utilization will surpass 30% of your available credit. How many points will my credit score drop if I close a credit card?
Does closing a zero-balance credit card affect your credit score?
Learn about the potential trade-offs involved in closing a zero-balance credit card, as it may influence both your credit score and long-term financial health. This article contains general information and is not intended to provide information that is specific to American Express products and services.
Why should you keep a zero-balance credit card open?
The biggest reason to keep a zero-balance card open is that closing an account reduces the total amount of credit available to you, which increases your credit utilization rate. The ratio of your outstanding credit card balances to your total credit limit is an important factor in determining your credit score.