Is It Okay To Close A Credit Card?

There is no better feeling than finally paying off a credit card. With the balance now at zero you may be tempted to close the account entirely -- but should you?

If you are someone who doesn’t like loose ends, closing an unused credit card account may seem like a logical thing to do. Why have something that you aren’t going to use? But stop right there. Closing a credit card may actually do more harm than good!

There are a number of things that make up your credit score that may be affected by closing an account, even one that you have no balance on and do not use. In most cases you are far better off just cutting up the card while leaving the account open.

It Will Drastically Impact Credit Utilization

One of the biggest factors in your credit score is credit utilization. How much of your available credit are you using? You generally want to stay below 30% overall. 

So say you decide to close an unused credit card with an available balance of $10,000. Once that account is gone so is that $10,000 of available credit in your credit utilization ratio. This means that your percentage of credit used will shoot up because the pool of available credit has suddenly shrunk. This will make your score drop depending on how much your ratio has increased.

It Will Impact Your Credit Longevity

Another important factor on your credit report is the longevity of your lines of credit. The longer a line of credit has existed the better it looks to lenders and the more positively it impacts your credit. If you close the card you’ve just paid off you may eliminate an established line of credit on your report.

What If I Really Want To Close It?

If you really want to get rid of the account, or have an annual fee you don’t want to deal with, you can certainly still close the account. If you have an annual fee you might want to contact the credit card company and try to switch to an account without an annual fee. Sometimes a new card with new terms can be opened with the same account maintaining your current available credit and account longevity.

Do what feels right for you but be sure to weigh all of your options and consider the consequences before you get rid of any account.

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