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Should You Close Your Credit Card Account?

close credit accountsHere’s the scenario – you ran up a bit too much credit card debt and weren’t able to make the payments. As your debt rose, you fell further and further behind, and it looked like you weren’t going to make it. Thankfully, you buckled down and too the necessary steps to get your debt under control, and you’ve finally paid off your balance.


If this is you, your reaction at this point may be to put your credit card in a drawer and forget about it, or cut it up and close your account. Well, before you take those steps, think again! While it may seem like a good solution at first glance, getting rid of your credit card all together may actually make your credit woes even worse!


Credit bureaus evaluate your credit score based on your activity. Following that logic, if the activity on your accounts suddenly stops, there will be nothing to base your credit score on. You need to keep your cards active and make responsible decisions so that the credit bureaus can see that you’re a trustworthy borrower.


Another thing to consider is that the age of your credit cards determines 15% of your credit score. If the card you’re about to cancel is the card you’ve had the longest, getting rid of it could have a significant impact on the average age of your cards, and do considerable damage to your credit score.


Another factor to consider is your credit utilization rate, which is the overall percentage of your available credit that you’re currently using. The best way to improve your credit score is to keep your utilization rate under 30%. If you cancel a card, you risk pushing your utilization rate into dangerously high territory, and hurting your credit score.


So, before you get rid of that credit card, think about the negative effects it will have on your credit score. A far easier solution would be to employ it for a few everyday expenses and pay it off monthly. In this way, your card continues to help you improve your credit score, instead of doing even more damage.

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