From a young age we were taught the importance of living debt free. When assessing your personal finance goals, you may find it tempting to close out some of your credit card accounts in an attempt to lower your debt. To many, it may feel good to close out an account that held negative payment history or feel at piece with one less credit card in your wallet to temp unneeded purchases. While the sense of accomplishment may be present, the effects of closing a credit card account can be a detriment to many aspects of your credit report.
When Should I Close my Credit Card
In terms of your credit score; canceling your credit card can harm you in a few different ways. A large portion of your credit score is dependent on the length of your credit history. The longer you make on time payments on an account, the better impact it will have when building your credit score. The good news is, if you have established a positive credit history with a particular card and do decide that closing it is the best option; it will be ten years before that cards history falls off of your account. This means that even if the account is unused, it will still factor into your credit history length!
Your credit history length is not the only aspect of the report that can change when closing a credit card account; your credit utilization rate will also take a hit. Your credit utilization rate is based off of the available amount used out of the cards available limit. This means that the lower the balance, the more positive effect the account will have on your score! Depending on the amount available to you, cards removed with a higher limit will harm you more than a card with a small available limit.
If you are attempting to establish credit, then closing your account can be a harmful setback. If you have already established positive payment history and have other revolving account active, closing a card may not harm your your score or harm it at all.
Looking for help in deciding if you should close out one of your credit cards? Do you have questions about your credit report? If you would like to speak with one of our attorneys or credit advisors and complete a free consultation please give Credit Law Center a call at 1-800-994-3070 we would be happy to help.
How Does Canceling A Credit Card Hurt My Score?
A single credit card can be the deciding factor when it comes to achieving a higher score. The majority of your credit report analyzes how well you are able to manage your open accounts and how trust worthy you are with the funds you have been allotted. A exemplary credit score will mirror the individual who holds long term, well managed accounts.
Once you have closed an existing account, the amount of available credit to be reported and your credit profile becomes less diverse. It is important to know that opening too many accounts or applying for new accounts too frequently can also hurt your score. The key is to manage the accounts you have currently open and not apply for new ones if the current accounts are not in order.
As mentioned previously, your credit utilization is another factor that is effected when a credit card account is closed. Say that you have 3 cards with $5,000 in available credit ($15,000 all together). If you utilize $3000 of your limit per month, you are sitting at about a 20% utilization rate among all accounts. If you happen to close out one of these cards and keep using $3,000 each month, you have risen your credit utilization rate to about 33%.
Should I Re-Open My Closed Accounts?
Once a credit card is closed, the only way to re open the account is to contact your creditor and attempt to negotiate a reopening of the account. Reopening the account can prove to be troublesome in many cases as the creditor will treat the reopening as a new account. The creditor will pull your credit report and evaluate your credit habits since closing the account when determining whether or not to reopen your card.
Instead of closing your card, an alternative measure would be to keep the card off of your person in a safe place and use it only on rare occasions to keep it from going inactive. A small charge should keep the account active and avoid the cards automatic cancellation.
Always Remember
- Do not close positive credit accounts.
- Avoid opening a gratuitous amount of accounts (just a couple of cards should do the trick).
- Only attempt to reopen a closed account after you have established good credit practices and can show credit worthiness.
- Assess your personal credit situation before considering closing a card.
Have you experienced a drop in your credit score after closing a credit card or a decrease in your cards limit and want to get your credit back on track? Follow us on Facebook or join us on our site for tips and tools to help get you back on the road to better credit!
