What To Know Before Closing A Credit Card With A Balance | Bankrate (2024)

FAQs

Is it a good idea to close a credit card with a balance? ›

Generally speaking, you should not close a credit card with a balance — or any credit card you're not really using — if you want to keep your credit in good shape.

To avoid damage to your credit score, paying down credit card balances first (not just the one you're canceling) is key. Closing a charge card won't affect your credit history (history is a factor in your overall credit score).

In most cases, however, it's best to keep unused credit cards open so you benefit from longer credit history and lower credit utilization (as a result of more available credit). You can use the card for occasional small purchases or recurring payments to keep it active as opposed to using it regularly.

Your credit utilization ratio goes up

By closing a credit card account with zero balance, you're removing all of that card's available balance from the ratio, in turn, increasing your utilization percentage. The higher your balance-to-limit ratio, the more it can hurt your credit.

While there's truth to the idea that closing a credit account can lower your score, the magnitude of the effect depends on various factors, such as how many other credit accounts you have and how old those accounts are. Sometimes the impact is minimal and your score drops just a few points.

Consider downgrading the card to a no-annual-fee version if possible. Pay off any remaining balance before closing the card. If you can't do this, consider transferring the balance to a low interest rate credit card, or talking with your card issuer about a payment plan. Redeem your rewards.

Keeping a zero balance is a sign that you're being responsible with the credit extended to you. As long as you keep utilization low and continue on-time payments with a zero balance, there's a good chance you'll see your credit score rise, as well.

It could hurt your credit score

A closed credit card account can stay on your credit report for up to 10 years if it was in good standing when it was closed, or seven years if the account has derogatory marks, such as a late payment.

How many credit cards is too many or too few? Credit scoring formulas don't punish you for having too many credit accounts, but you can have too few. Credit bureaus suggest that five or more accounts — which can be a mix of cards and loans — is a reasonable number to build toward over time.

The longer you've had credit, the better it is for your credit score. Your score is based on the average age of all your accounts, so closing the one that's been open the longest could lower your score the most. Closing a new account will have less of an impact.

Does your credit score go up if you close an account? ›

Not directly, no. Information about your bank account generally isn't included on your credit report because it's not thought of as credit. So closing your bank account shouldn't affect your credit score. But if you close your bank account when you're overdrawn, you could find that this does have an impact.

Experts generally don't recommend you ever cancel a credit card, unless you're paying for it (such as in the form of an annual fee) and not ever using it. And if this is the case, canceling a card once probably won't hurt you as long as you have a healthy credit history otherwise.

Credit card inactivity will eventually result in your account being closed. A closed account can have a negative impact on your credit score, so consider keeping your cards open and active whenever possible.

If you close an unused credit card and apply for a new one, you are now adding hard credit inquiries to your credit profile. New credit inquiries can also negatively impact your credit score.

If you have paid your card down to a zero balance before receiving your refund, you will have a negative balance on your credit account — and any future purchases will be applied to the negative balance first.

Once your credit card is closed, you can no longer use that credit card, but you are still responsible for paying any balance you owe to the creditor. In most situations, creditors will not reopen closed accounts.

If you regularly use your credit card to make purchases but repay it in full, your credit score will most likely be better than if you carry the balance month to month. Your credit utilization ratio is another important factor that affects your credit score.

If you don't pay off your balance in full before your grace period expires, your credit card issuer will begin to charge interest not only on your current balance, but also on any new purchases you make on the card. This interest will rack up faster than you might think, so make sure you keep an eye on your balance.

Closing a credit card could lower the amount of overall credit you have versus the amount of credit you're using (your debt to credit utilization ratio), which could impact your credit scores.