Will closing a credit card affect your credit score? – There maybe various reasons why a person may want to close their credit card that still has a balance on it.It maybe because they have a large balance on the card and want to stop spending on it anymore.Also it could be because the card use is not happy with the new policies of the card issuer and simply wants to get rid of it.These are all possibilities,but the important question is – should you do it?Should you close down an active card that still has a balance on it?
Will closing a credit card affect your credit score?
- If you have been late on a few payments,or have missed a few payments because of which you were charged late fees and penalties,then there is a good chance over a period of time these inconsistencies will reflect on your credit score.
- If you have been paying the minimum due or more on the card religiously every month and still want to close the card because of some other reason,then this will have a neutral effect on your credit score.
- IT will most definitely not raise your credit score.
- Closing a card will also not remove the credit history associated with it
As stated before in a previous post there are some types of credit cards that you should not close as these could have an impact on your credit score,these are:
Old credit cards – Old credit cards hold the most history and how your spending habits as well as your paying back capabilities since the start of your financial life.These have stood the test of time and should not be closed.
Single credit card – If you have just one credit card,it should be kept alive and even a small payment every month toward it,would be good.These should not be closed as not only are they your own line of credit,it is also convenient method of plastic money.
Cards with balance – Almost all credit cards have a balance on it when it is closed for a variety of reasons.I have read reports that closing these cards have little effect on the FICO score,this is only true if you are doing a balance transfer and continue to make good on payments to your new card issuer.
Does credit utilization affect credit score
As long as there is an outstanding balance on a card means that you are not clear from debt.The line of credit you have been extended by the lender may take a lifetime to clear,but as long as you have an balance,means the bank is earning finance charges from you.From the perspective of the card issuer this may be a good thing,but having a sustained balance that does not reduce much over the course of a few years is never good in your credit report.
The higher your credit utilization you carry month over month after closing your card the longer it will take to have any impact on your credit score.After closing your credit card with a balance on it,you need to either do a balance transfer or try and clear as much as that accumulated debt as possible.This in-turn will reduce the ratio of the balance to credit limit and can be achieved by paying more than the minimum monthly due.