Scissors Cutting up a Credit Card

Does Closing a Credit Card Help or Hurt My Credit Score?

Definitely, closing a credit card account will hurt your credit.  This is one of the biggest mistakes if you’re trying to build your credit score.  Before attempting to close our credit card accounts, let’s all be aware regarding the impact of this to our credit.

What are the possible scenarios why credit card holders are closing their credit card?

  • Most credit card holders are applying for new loans like housing and car loans but they currently have an existing credit card account with a high balance.  What they do is, they are closing their credit card to avoid the high balance to show up on their credit report, so, when they apply for a new loan they think that it will be easily approved.  Do you think this a good idea?   Big No.

This idea will not help at all.  It will not resolve the problem nor lessen it.  Why?  If you have an existing balance on your credit card account, whether it is still active or closed account, the balance will be reflected on your credit report until you pay it off.  It is very important to continue making payments on it; just take note, minimum payments should still be made on or before the due date, because all payment information is being submitted to credit bureaus.  Every late payment will hurt your credit.

  • Another possible scenario why credit card holders want to close their account is that they don’t need the credit card anymore.  They want to manage their finances well, so, they are cancelling some credit cards that are not being used.

There are 2 scenarios why a credit card is being closed, cancelled by the account holder or closed by the credit card company.

Scissors Cutting up a Credit CardIt is being advised by financial advisers to avoid hurting your credit, instead of closing your credit card, you can use it once or twice a month even for a minimal amount, then, make the full balance on or before the due date to avoid accruing interest.  Just to make things clear, that either you will be the one to cancel the account or the credit company, it will still hurt your credit.

If there’s no usage for nearly 3 months on your credit card, it will be cancelled by the company automatically.  To avoid it from happening, don’t leave your card without any usage for more than 2 months.  Anyway, even if you use it then pay the full balance, you are not paying for any interest, at the same time you are helping to improve your credit score.  This is most advisable for those credit card holders who are just starting to build their credit.

But let’s say, you really have too many credit cards, and you really would like to cancel one of them, what’s the best thing to do?  You validate your reasons and your options, is it because of the interest rates, membership fees or the rewards program?  If your answer is yes, it is important to take time to contact your credit card company regarding your options and what offers they can provide to you.

Another important thing to consider, don’t close the first and oldest credit card account you have.  You don’t want to let go of something that helped you build your credit, right?

To make things easier for us, before applying for a credit card, or before accepting a new credit card offer, validate your reasons, check the best deals, and the importance of having this credit card.  So, you won’t end up cancelling credit cards often; this will only hinder your goal to achieve an excellent credit rating.