Don’t Close That Credit Card Account!

You’ve finally paid off one of your credit cards…the balance is zero and you don’t plan to use it again.  Should you close the account so you won’t even be tempted to use it again?

While closing the account might seem like the smart thing to do at first, the truth is, you really need to think about it before you close ANY of your credit cards.  Why?  Closing an account will cause your total available credit to go down  and if your total available credit goes down, then your credit utilization percentage will likely go up, and this can cause your credit score to drop.  Leaving the account open with a zero balance gives you a 0% credit utilization rate on the credit card.  And this can balance out your overall credit utilization, helping you to keep it at or below the 30% that lenders look for when considering you for a loan of any kind.

And, as if that’s not enough, closing an account can also affect your payment history (another 35% of your score), especially if you’ve held the card for a long time (and you’ve kept your payments current).  Closing a card like this can take years of good payments off your credit history, making lenders think twice when they’re thinking about extending more credit to you.

So, what’s the best thing to do with those credit cards?

The truth is, if there’s no annual fee, no monthly “maintenance” fee, etc., attached to the credit card, it may be in your best interest to keep the credit card and use it once or twice a year just to keep the account (and payment history) current.  If you don’t feel comfortable keeping it in your wallet, simply put it away somewhere safe at home.  That way, you’ll have to think twice about using it impulsively!