Can Closing an Account Affect Your Credit Score?
There may come a time when you get too big for a credit card – for example, because you get newer cards with more generous benefits and rewards programs. If you have a credit card that no longer pays for use, you might be tempted to simply close the account rather than leaving it open.
But before you do so, ask yourself these important questions to see if it’s really the right decision.
1. How long has the card been open?
Closing a card that has been open for a year or less shouldn’t have much of an impact on your credit rating. Closing a card that you have had for many years, however, is another story.
> The length of your credit history is a factor that determines what your credit score looks like. If you close an account that you’ve been open for a long time, leaving yourself with only newer accounts, your score might drop, so you shouldn’t necessarily rush to close a card you’ve held on for years.
2. What is my spending limit on the card?
Another important factor that goes into calculating your credit score is your credit utilization rate, which measures the amount of available credit you are using at a time. When this ratio exceeds 30%, you put your credit score in danger of falling. And that’s why it’s important not to close a credit card with a generous spending limit.
Suppose you owe $ 3,000 on your credit cards but have a total spending limit of $ 10,000. Since you are correct at that 30% usage mark, you should be OK from a credit score standpoint. But what if closing one of your cards reduced your total spending limit to $ 7,000? As a result, you have a credit utilization rate of around 43%, which could lower your score.
3. Are there annual fees?
Although there are certain situations where the payment of a annual subscription worth it, it usually doesn’t make sense to pay a fee for a card that you don’t really use or get a lot of benefits from. But if you’re planning to close a credit card that doesn’t charge a fee, you might as well keep it open, because you basically have nothing to lose by hanging on to it.
You might think that the more credit cards you have open, the more likely you are to be a victim of financial fraud. And there is some truth to this: the more cards you have, the more a criminal can try to steal card numbers.
But often, it can be beneficial to keep a credit card open, even if you aren’t really using it. And if you’re worried about fraud, be sure to check your credit report several times a year. This should alert you to suspicious activity that you can track. You should also, as a general rule, log into every credit card account you have monthly to make sure that you don’t see anything suspicious related to your account. But either way, keeping an old credit card can be financially beneficial, so don’t rush to cancel an account you no longer need.
The best credit card erases interest until 2023
Motley Fool offer: If you have credit card debt, transfer it to this top balance transfer card guarantees you an introductory APR of 0% until 2023! Plus, you won’t pay any annual fees. These are just a few of the reasons our experts rank this card among the best to help you get your debt under control. Read our full review for free and apply in just 2 minutes.
We strongly believe in the Golden Rule, which is why the editorial opinions are our own and have not been previously reviewed, endorsed or endorsed by the advertisers included. The Ascent does not cover all the offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.