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In this article
Highlights:
Closing a credit card could change your debt to credit utilization ratio, which may impact credit scores
Closing a credit card account you’ve had for a long time may impact the length of your credit history
Paid-off credit cards that aren’t used for a certain period of time may be closed by the lender
You’ve paid off your credit card, and you’re wondering if you should close the account - and whether that might impact your credit scores, for better or worse.The answer depends on your unique credit situation.
Before you close a credit card account, consider the following:
- 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. You can calculate your debt to credit utilization ratio by adding all your available credit and all the debt you owe on those accounts. Divide the total debt by the total available credit. Creditors and lenders like to see a lower ratio of how much debt you have compared with how much available credit you have.
- Closing a credit card account you’ve had for a long time may impact the length of your credit history, which is another factor generally used to calculate credit scores. In general, creditors like to see you’ve been able to properly handle credit accounts over a period of time.
- If you have a paid-off credit card you haven't used in a certain period of time, it may be declared inactive and closed by the lender.
If you do close a credit card account, it’s a good idea to review your credit reports to make sure the information is reported correctly. You’re entitled to a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus by visiting www.annualcreditreport.com.
You can also create a myEquifax account to get six free Equifax credit reports each year. In addition, you can click “Get my free credit score” on your myEquifax dashboard to enroll in Equifax Core Credit™ for a free monthly Equifax credit report and a free monthly VantageScore® 3.0 credit score, based on Equifax data. A VantageScore is one of many types of credit scores.
Sign up for a credit monitoring & ID theft protection product today!
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As an enthusiast with extensive knowledge of credit scores and financial matters, I can confidently discuss the impact of closing a credit card account on credit scores, as highlighted in the provided article.
Closing a credit card account can indeed have repercussions on your credit scores, and understanding the key concepts involved is crucial for making informed decisions. Here are the key points covered in the article:
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Debt to Credit Utilization Ratio:
- Closing a credit card may alter your debt to credit utilization ratio, a significant factor influencing credit scores.
- Your debt to credit utilization ratio is calculated by dividing the total debt you owe on your credit accounts by the total available credit.
- A lower ratio is generally favorable as it indicates that you are not heavily reliant on credit and are effectively managing your debt.
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Credit History Length:
- The length of your credit history is another important aspect considered in credit score calculations.
- Closing a credit card account that you've held for a long time might impact this aspect negatively.
- Creditors typically prefer to see a longer credit history as it demonstrates your ability to manage credit responsibly over an extended period.
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Inactive Credit Cards:
- The article mentions that paid-off credit cards that remain unused for a certain period may be deemed inactive and closed by the lender.
- This closure can impact both your credit history length and the overall credit available to you.
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Credit Report Review:
- Before closing a credit card account, it is advisable to review your credit reports to ensure accurate reporting.
- You are entitled to a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus, which can be obtained at www.annualcreditreport.com.
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Monitoring Credit Scores:
- The article suggests creating a myEquifax account to access free Equifax credit reports and enroll in Equifax Core Credit™ for a free monthly Equifax credit report and VantageScore® 3.0 credit score.
- Monitoring credit scores regularly allows you to stay informed about changes and take proactive measures to maintain or improve your credit health.
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Credit Monitoring Services:
- The article concludes by offering a credit monitoring and ID theft protection product for a monthly fee, providing access to a 3-bureau credit report.
In summary, the decision to close a credit card account should be made after considering its potential impact on your debt to credit utilization ratio and credit history length. Regularly monitoring your credit reports and scores is essential for maintaining financial health and addressing any discrepancies promptly.
