How Closing Credit Cards Affect Your Credit Score – I heard this millions of times when i worked for credit card collections – the card user would tell me that “they would take a scissor and cut that card up”.
As a collection agent,my job was to call up customers who defaulted on thier payments and ask them to make atleast a minimum amount due on the card to avoid fees and penalties.
Most of these users were not first time defaulters.In most cases,they were back on their monthly payments owing to financial constraints and not because they were negligent.The cards had become a burden and they wanted to close it down and never use it again.
Implications of closing a credit card
If you are in debt and are finding it hard to even make the monthly due,the first thing you should do is to stop that card ASAP – if you still are.
Stopping usage on that card and paying off a small portion of the balance every month will lower the finance charges significantly.This inturn will also reduce the minimum due as the balance continues to go down.
This may or may not have direct consequence to your credit score.It is discussed more in detail below.
Does closing a credit card affect credit score
Most people think that when they close their cards,that it will have a positive impact on their credit scores.There are a few variables to consider here first- What is the reason that you are closing the card down in the first place – Are you unable to continue making payments on the card? are you trying to reach a settlement because of bankruptcy?Are you overwhelmed with all the charges being slapped on your card account?
All these attributes are proof of a personal negative experience with the credit system that has ultimately led to the decision to close the card.
In all probability,your credit score has taken a small hit much before you decided you wanted to close the card- maybe because of a series of missed payments,or crossing the credit limit or because high credit utilization.
At the point of closing the card,your credit score would be unchanged,assuming it took a small hit in the previous months.what you can do now is start making a regular,significant payment towards reducing that over- the-top balance,maybe every 3 weeks.The faster you clear all that debt,the better your chances are of your credit score going a few notches up.
So let me re-iterate – Closing the card down will not lower your balance,but if you make a sizable contribution to reduce the accumulated balance significantly over a period of time,it will have work towards a healthier credit score.
Should you close your card?
Im sure many of you who are on the verge of closing a card and are debating what to do,should go through these few points first before re considering.
- Closing a card because of a large accumulated balance is not the best idea.It might be better to clear off a large part of the balance so that you can reduce the high finance charges.This will allow you to continue using the card at a later point.
- Closing a card with a balance on it will be reported to the credit bureaus,especially if there are missed payments on it as well as over limit and late payment charges on it as well.
- Closing an active card with balance on it might not hurt your FICO score directly,but holding on to large balance for a long time will keep your credit utilization high and could send a negative signal to your credit score