Does Closing a Credit Card Hurt Your Credit?
If you’re considering closing a credit card, whether you don’t use it anymore or want to avoid the temptation of overspending, understand that doing so may hurt your credit. So, you should take the time to think about whether this makes sense for your unique financial situation. Let’s take a closer look on how to decide if you should close your credit card and some alternative options you might want to explore.
How does closing a credit card affect your credit score?
When you close a credit card, you lose the credit limit available on that account and increase your credit utilization ratio, which is the amount of credit you’re using divided by the amount at your disposal. A higher credit utilization ratio can lower your credit score because it positions you as a risky borrower who may be living above your means.
Closing a credit card can also take a toll on your score because it may lower the average age of accounts on your report. This is particularly true if the account has been open for a while, as older accounts tend to help credit scores if they don’t have a history of late payments.
Should I close my credit card?
While closing a credit card may be a good option in some cases, it might not be the best choice in others. Here’s when it does and doesn’t make sense.
When closing a credit card makes sense
If you have to carry a balance on a credit card but the interest rate is high, closing it may be a smart move. You may also want to consider closing your card if you’re paying a high annual fee and the benefits aren’t worth it to you. Finally, if you’re overwhelmed with credit card debt and tend to overspend on the card, closing it could improve your situation.
When keeping a credit card account open makes sense
You might want to keep the credit card open if you’ve had it for a long time or it’s one of the oldest accounts on your credit report. Keeping it open can also benefit you if you don’t have many other credit accounts, or if the only reason you’d like to close it is because you rarely use it.
Alternatives to closing your credit card
If you decide to keep your card open to help your credit, there are some ways you can resolve the issues that were tempting you to cancel it in the first place. To combat a high annual fee, you could call your credit card issuer and ask if they’re able to lower or waive it.
If you’re concerned about overspending or getting into more debt, take the card out of your wallet and stash it away so that you don’t rack it up. In the event you want to cancel your card because you rarely use it, you can keep it active by making a small purchase on it once per month.
How to improve your credit score
If you do choose to close your credit card, follow these tips to improve your credit score:
- Pay your bills on time: Do your best to pay your mortgage, rent, car loan, and other bills on time. You can enroll in automatic payments or set up calendar reminders on your phone to help.
- Be careful of new credit: If you took out a loan recently, don’t apply for another loan or credit card shortly after. Opening too many credit accounts at one time can lower your credit score.
- Pay off your debt: Since less debt can lower your debt utilization ratio and increase your credit score, you may want to pay it off. If you don’t have a lot of extra money to put towards debt, you can consider picking up a side gig or cutting your expenses.
How to get funds fast with bad credit
Advance America offers a variety of personal loans for borrowers that need fast funds but don’t have a good credit score. These include payday loans, installment loans, title loans, and lines of credit. You may apply for an Advance America loan online from the comfort of your home in just a few minutes. If approved, you can get your money quickly, sometimes that same day or within 24 hours. Visit Advance America today to learn more about the loans we offer.