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So you’re moving to Patagonia to spend your life trekking across the cordilleras and swimming in glacial lakes. Excellent choice. Only one thing left to do: Cancel all of your credit cards—the ones you’ve racked up huge balances on.
Before you go off the grid, it’s important to consider if closing an account with a balance is the best move for you and your credit score. You may think you won’t need any of these things anymore, but it gets pretty chilly in the winter months in southern Chile, so perhaps reconsider.
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Is It Better To Pay Off a Credit Card or Maintain a Balance?
It is best to pay down your credit card balance in full each month on time. We never recommend carrying a balance if you can avoid it. If you carry a balance on your card month to month, you will begin to accrue interest which can quickly increase the total you owe. Whenever possible, you should only charge purchases to your card when you can pay them off in full before you begin to accumulate interest on those charges.
What Happens When You Close a Credit Card with a Balance?
You can close a credit card with a balance, but there are a few things to keep in mind. First, by closing the credit card you can no longer use it to make purchases. Second, you are still responsible for paying off the rest of your balance. Third, the outstanding balance can still accrue interest. It remains imperative to pay off the remaining balance as quickly as possible.
Does Closing Your Credit Card Hurt Your Credit Score?
Closing a credit card can affect your credit score and closing an account does not repair any damage the account has done to your credit. Late payments will still appear on your report for about seven years. Accounts in good standing will disappear after about 10 years.
Your credit utilization rate is calculated by comparing the amount of credit you’ve used with the amount of credit you have available across all credit accounts. We don’t recommend using more than 30% of your total available credit, as anything higher can detrimentally affect your credit. By this logic, closing an account can reduce your overall available credit and thus increase your credit utilization rate. If this means bumping the rate over 30% or putting you at risk to do so more regularly, this could have a negative impact on your credit score.
While a closed account may improve how your credit report displays your creditworthiness to potential lenders by reducing the number of open accounts, sometimes leaving the account open (though inactive) can still be better overall for your score.
The length of your longest-held account can also impact your credit score. Closing an older card just because you have stopped using it isn’t a great idea because it reduces the overall length of your active credit history, which can reduce your credit score and hurt your credit.
Is Closing Your Credit Card a Bad Idea?
Whether closing a credit card is the right move for you depends on your financial situation, but it warrants serious consideration before you take steps to do so. Sometimes you may be eligible to switch an account to a new card, which can be a way to get a lower annual fee or different card terms. If you’re concerned about fees, rates or other issues with your card, contact your issuer to discuss options that may help you keep your account open but use a different card.
You also may want to keep your account open and simply not use the card (sometimes referred to as sock drawer-ing) or not use it as often. This could be a logical option if you still have rewards from using your card to redeem since closing an account can result in forfeiting all unredeemed rewards. Closing your account can be beneficial if you want fewer accounts to have to manage or want to reduce the risk of seeing your identity stolen. Be wary of closing too many accounts.
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Bottom Line
Always pay off balances entirely every month where possible. Closing an account does not relieve interest, fees or other negative impacts not paying your bill can have on your balances or your credit. Closing credit cards can both negatively and positively affect credit, so be sure to understand your full financial and credit picture before doing so. Ensure you close accounts in good standing and redeem all outstanding rewards before doing so.
FAQs
In general, you should be able to close your account by calling the credit card company and following up with a written notice. If you still have a balance when you close your account, you are required to pay off any balance on schedule. The card company is allowed to charge interest on the amount you still owe.
What happens if I close a credit card with a balance? ›
If you close a credit card with a balance, you'll still be responsible for that debt. Card issuers will continue to send statements in the mail, and interest will still be applied to that balance. It's best to leave your account open, as there can be negative impacts on your credit score if you close a card.
How to close a credit card with an outstanding balance? ›
You can't close a credit card with an outstanding balance. In case, you want to close the credit card, you will have to clear the balance that may be on the card. Will closing a credit card affect your credit score? Closing a credit card might affect your credit score.
Does a closed account with a balance affect credit score? ›
While closing an account may seem like a good idea, it could negatively affect your credit score. You can limit the damage of a closed account by paying off the balance. This can help even if you have to do so over time.
Is closing a credit card with zero balance bad? ›
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.
How many points will my credit score drop if I close a credit card? ›
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.
Is there any harm in closing credit card? ›
Will Closing a Card Damage My Credit History? Not really. A closed account will remain on your reports for up to seven years (if negative) or around 10 years (if positive). As long as the account is on your reports, it will be factored into the average age of your credit.
What is the rule for credit card closure? ›
Closure of a credit card on the other hand amounts to termination of the account-based relationship between the cardholder and the card-issuer. The request for closure has to be honoured within seven working days as stipulated in Para 8 of the MD.
How do you close a credit card account without hurting your credit? ›
Pay off your credit card debt
“Ideally, if you want to protect yourself, pay every balance down to zero before picking the card you want to close,” says McClary. If your CUR is 0%, it's still going to be 0% when you close a card. No jump in CUR or late payments means no credit score penalty.
How long does it take to recover from closing a credit card? ›
How Long Does a Closed Credit Card Remain on My Credit Report? A closed credit card account will stay on your credit report for seven to 10 years. If you made all of your card's payments on time, or at least within 30 days of the due date, it will remain on your credit report for up to 10 years.
A closed credit card or loan that was in good standing when it was closed will stay in your credit file for 10 years. In other words, you were current on your payments and either paid off the loan or the credit card was closed and you paid the balance.
Will credit card companies reopen a closed account? ›
More often than not, issuers will let you reopen a closed credit card account. But your request may be unsuccessful if your timing doesn't abide by the issuer's policies.
What is the 609 loophole? ›
2) What is the 609 loophole? The “609 loophole” is a misconception. Section 609 of the Fair Credit Reporting Act (FCRA) allows consumers to request their credit file information. It does not guarantee the removal of negative items but requires credit bureaus to verify the accuracy of disputed information.
Is it true that after 7 years your credit is clear? ›
In general, most debt will fall off of your credit report after seven years, but some types of debt can stay for up to 10 years or even indefinitely. Certain types of debt or derogatory marks, such as tax liens and paid medical debt collections, will not typically show up on your credit report.
What is a goodwill letter asking for forgiveness? ›
A goodwill letter is a formal letter sent to a creditor, lender or collection agency to request forgiveness for a late payment or other negative item on your credit report. In the letter, you typically: Explain the circ*mstances that led to the late payment or issue.
Is it better to cancel unused credit cards or keep them? ›
In general, keep unused credit cards open so you benefit from longer average credit history and lower credit utilization. Consider putting one small regular purchase on the card and paying it off automatically to keep the card active. At Experian, one of our priorities is consumer credit and finance education.
Is it bad to pay off a credit card and close it? ›
A credit card can be canceled without harming your credit score. 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).
Does leaving a balance on credit card hurt credit? ›
This can cause your credit score to dip. That's because 30 percent of your FICO credit score is based on the amount of money you owe your creditors, so even carrying a small balance on a credit card could temporarily lower your credit score.
What happens if my credit card expires and I still have a balance? ›
Just keep in mind that even if your physical card has expired and you haven't activated your new card, your credit card account is still active. An expired or inactive card won't affect your balance, so you're still required to make the minimum payments.
