The truth about closing a credit card & how it affects your credit score

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Many people close a credit card for various reasons, such as wanting to avoid debt, no longer needing the card, or poor customer service. However, before closing a credit card, it is vital to understand how this will affect your credit score. In short, closing a credit card can lower your credit score. Closing a credit card will reduce your available credit and remove any positive history associated with that account. Additionally, closing an account with a balance owing will increase your credit utilization ratio, lowering your score.

How Closing a Credit Card Affects Your Credit Score

As mentioned above, there are several ways in which closing a credit card can negatively impact your credit score. Let’s take a more detailed look at each of these factors:

Reduces the Total Amount of Available Credit :

One factor used to calculate your credit score is your “credit utilization ratio.” This ratio is calculated by dividing the total amount of debt you owe by the total amount of credit available to you. For example, if you have two credit cards – one with a $5,000 limit and one with a $10,000 limit – and you owe $2,500 on the first card and $0 on the second card, your credit utilization ratio would be 25%.

Generally speaking, the lower your credit utilization ratio is, the better it is for your score. Therefore, if you close one of your credit cards, you will be reducing the total amount of available credit, which will likely increase your credit utilization ratio.

Removes Positive Payment History Associated With the Account

Another factor in calculating your credit score is your payment history – specifically, whether or not you have made all of your payments on time. When you close a credit card account, you also lose any positive payment history associated with that account. It could potentially hurt your credit score.

One way to help offset this is to keep the account open and continue using it responsibly. It will show that you can still manage a credit card account responsibly and help keep your positive payment history intact. Another option is to close the account and open a new one with the same issuer. This way, you can keep the positive payment history from the old account while also getting a fresh start with the new account.

Increases Credit Utilization Ratio 

As mentioned above, one factor in calculating your credit score is your “credit utilization ratio.” This ratio is calculated by dividing the total amount of debt you owe by the total amount of credit available to you. If you have an outstanding balance on the credit card you’re considering closing, this will increase your overall debt level and likely result in a higher credit utilization ratio. And as we mentioned before, a higher credit utilization ratio can lead to a lower credit score. Of course, it’s essential to remember that these effects may not be permanent.

For example, suppose you close a credit card but continue making all your payments on time and keep your balances low on all other accounts (including other open revolving accounts). In that case, your score should rebound over time. Just remember that it takes time to rebuild credit, so don’t close an account unless you’re sure it won’t negatively impact your ability to borrow in the future.

Keeping a few things in mind when considering closing a credit card would be best. First and foremost, understand how this will affect your credit score. Closing a credit card can lower your credit score in several ways:

  • Reducing the total amount of available credit
  • Removing any positive payment history associated with the account
  • Increasing your debt-to-credit ratio

While the adverse effects of closing a credit card are typically only temporary, it’s crucial to weigh the pros and cons carefully before taking action. If you’re not sure whether or not closing a credit card is right for you, consider speaking with our financial advisors. They can help you understand the potential impact on your credit score and make the best decision for your financial future. We are Real Credit Deal, and we are here for you.

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Real Credit Deal is a credit repair company. We help people rebuild their credit, so they can buy the things they need and want in life. Our mission is to educate people about credit, help them understand their credit reports, and provide them with the tools they need to improve their credit scores. We believe everyone deserves a second chance and are here to help people get started on their journey to better credit.

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Need help with your credit Score?

Click the calendar below to schedule Your free credit consultation Today