It is not uncommon for a consumer who has fallen significantly behind on credit card payments to close it. Others may close a credit card because they have had a dispute with the issuing entity or they have no need for the balance any longer. However, everyone should be aware that taking this step will not cause delinquency to disappear and, in certain instances, it may cause more damage to a credit score than one might expect.
While it seems like being “in debt” with too many cards is a bad idea, there is such a thing as good debt. If you can pay off your account, then you shouldn’t close it. Those cards are beneficial to your overall credit history. While there are moments when you should consider terminating certain statements, here are some credit cards you should never close.
Cards With an Outstanding Balance
If you close a card that has a remaining balance, the account’s credit limit and available credit comes up on a credit report as $0. Therefore, because there is a still a balance owed, this non-existent credit limit will make it appear as though you spent the last available dollar of credit extended to you. Credit cards that are “maxed out” can harm your credit score.
Your Only Card With Available Credit
A card account that has untapped credit available is probably boosting your credit score by reducing your credit utilization rate. If this account is closed, your report will contain accounts carrying high balances and high utilization of available credit.
Your Last Credit Card
Credit scores are determined in part by the variety of credit accounts you currently have. Therefore, having at least one credit card is an excellent way to maximize your score. An open credit card in good standing demonstrates solid account management experience, and therefore it is essential to maintain.
Your Oldest Credit Card
When you close an older card account, you shorten the overall credit history reported to the major bureaus. Consumers with shorter credit records are viewed as high risk. Though the hit to your credit score is not immediate, closing an old account will eventually cause an avoidable drop.
Cards With the Most Advantageous Terms
Credit cards with attractive interest rates, airline mile programs, cash back rewards, or no annual membership fees are the best accounts to maintain. If you are going to use a card anyway, you may as well reap some benefits.
Accounts You Can Close
You can, however, close newer accounts without messing up your records. You may also decide to close an account if the company institutes an unexpected interest rate increase or creates an annual fee requirement. If you formally reject new terms, the issuer is likely to close the account on their own accord. Victims of fraud or identity theft will also want to close a credit account so that there’s no further financial damage.
How to Close an Account Properly
If closing an account is appropriate, a written notice should get sent to the issuing bank. While it is okay to make an initial phone call informing the issuer of your decision, it should be followed up in writing. Check your credit report after some time has passed to verify that the account is no longer in your history.
Getting the Credit Help You Need
The bottom line is that you must be as selective about which card accounts you close as you are about deciding which ones to open. The key is to remain aware and educated on what might impact your credit score.
Keeping certain credit cards open can be highly beneficial to your credit score, but if you have other accounts leaving a stain on your credit report, you should seek the help of a debt settlement attorney. Heather Benveniste at Benveniste Law Firm has experience helping Illinois consumers alleviate debt issues. Through negotiations with creditors and lenders, Heather can help prevent debt collection lawsuits and settle on a favorable debt repayment plan. Contact us today at 1-800-497-5358 for a free case evaluation.