When to Close a Credit Card Account vs. Lowering Your Credit Score

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Credit is an important tool in the financial world. There are many varying factors that could influence a credit score. If a person has multiple credit cards, the amount of open accounts and account usage will greatly impact their credit score. There is a correlation between closing and opening credit card accounts and a credit score. Sometimes closing credit card accounts can lower a credit score. A person should determine when it is the appropriate time to close an account so they can avoid lowering their credit score.

How Closing Credit Card Accounts May Lower Your Credit Score

There are scenarios where closing credit card accounts can lower a credit score. The reason is that closing accounts can impact what is known as a credit to debt ratio—the ratio between the amount of open credit a person has to the amount of debt a person is carrying. To maintain or improve your credit score, it is important to keep a balance of 10% to 15% of the amount of open credit available.

Closing credit card accounts can decrease the amount of open credit a person has—negatively impacting their credit score. There are a few things that can be done to avoid voluntary and involuntary closure of credit card accounts:

Keep Credit Cards Open Even After Paying Them Off

This is an important point to keep in mind because most people may not think about this. Once a credit account is completely paid off, it may be tempting to close it—but you shouldn’t. Having a credit card account that has a very minimal balance looks good to creditors. Closing an account can throw off the credit to debt ratio and lower a credit score.

Communicate with Credit Card Lenders

Sometimes lenders will automatically decrease the amount of available credit that a person has access to on their credit card—without proper notification. This could not only lower credit, but it could cause a chain reaction with other credit accounts. So, it is extremely important to take the initiative to keep in contact with credit card lenders and check up on credit card accounts every once in a while.

Check Your Credit Report Often

Credit reports are used by credit card lenders when checking for eligibility or adjusting credit line amounts. It important to check your credit reports often to make sure that there aren’t any mistakes—as these mistakes will impact your credit card accounts.

Set Up Credit Card Alerts

This is an easy way to get a heads up in case a lender needs to reach out or activity happens to your account. Often times, these alerts can be sent to an email or via text. Opting in for these alerts can be an easy way to monitor your account’s activity.

Keep Credit Cards Active

When a credit card is not being used for an extended amount of time, some lenders will automatically close the credit account. To avoid this, make sure you are rotating usage for all of your credit card accounts.

Consider the Impact on Credit Score Before Closing a Credit Account

If a person must close a credit account, there are some variables that should be considered. This is important because these variables may reduce the impact on credit score and they present other advantages. Before picking a credit account to close, consider these variables:

  • Age of Accounts: The older an account is, the better it will look for your credit. So keep the oldest account open if possible.
  • Pay Off Balances: It is best to pay off as much debt on other credit cards before canceling a card—if possible. This way the credit to debt ratio isn’t affected too much.
  • The Amount of Funding: Cancel the credit accounts that have the least amount of funding.
  • The Interest Rates: Think about the interest rates each card has and keep the ones that cost less to use.
  • Perks/Rewards: Factor in the amount of rewards a card has and think about how often you use those perks. If a card is being canceled- don’t forget to redeem those earned rewards!

How Many Credit Accounts Are Good for a Credit Score?

There really isn’t a set number amount of credit card accounts that is best. The amount really depends on a few personalized factors; an individual’s spending habits, the amount of credit card debt they have, their financial goals (both long-term and short-term), and how debt is managed. Those factors will have more impact on a credit score than the amount of credit accounts a person has. So it is important to keep credit card accounts at a manageable amount—whatever that amount may be for an individual.

When closing credit card accounts, it is important to think about how doing so may lower a credit score. Generally, closing a credit account has a negative impact on a credit score. If a person doesn’t close the account themselves and it remains inactive, sometimes those accounts are closed by the credit lender. However, there are many simple ways to avoid this involuntary influence on credit. If a person does voluntarily want to close a credit card account, they can do it in a way that makes the most financial sense and has a minimal impact on their credit score.

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1Loan approval is subject to meeting the lenders credit criteria, which may include providing acceptable property as collateral. Actual loan amount, term, and Annual Percentage Rate of the loan that a consumer qualifies for may vary by consumer. Loan proceeds are intended primarily for personal, family and household purposes. Minimum loan amounts vary by state. Consumers need to demonstrate ability to repay the loan.

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