Closing a credit card with zero balance is not a good idea if that card has no annual fee. Any credit card you manage responsibly, even an unused one, reflects positively on your credit history. So closing such a card will have a negative impact on your credit standing. But it can be worth it if your card is costly or if you’re worried about falling victim to fraud while you’re not keeping a close eye on it.
Here are the arguments against closing a credit card with zero balance:
Average account age suffers. This makes up at least 15% of your overall credit rating, so shortening it can hurt. Here’s a quick example: Imagine you have three credit card accounts, which have been open for 3 years, 5 years and 10 years, respectively. The average account age is 6 years. If you close the 10-year-old account, the age of your average account falls to 4 years. Older accounts are better for your score because a long track record of responsibility tells issuers you’re likely to behave the same way in the future.
Utilization increases. “Utilization,” or how much of your credit line you use, is important to your score. Creditors care about both your utilization on individual cards and your total utilization. Generally, the lower each is, the better. And closing an account with zero balance will increase your total utilization.Let’s say you have three credit cards, each with a $1,000 credit line. You use 0% of one and 25% of the other two. Overall, that’s 16.7% utilization. But if you cancel the unused card, it jumps to 25%. That’s troublesome because credit score damage typically worsens if your utilization rises above 30%, and you’d be close to that milestone.
So closing an account will be a blow to your credit. You can improve your score afterward by paying on time with your remaining account(s). But it’s usually best to just keep accounts open and avoid the damage entirely. There are a few exceptions, though.
Here’s when to close a credit card with zero balance:
It has an expensive annual fee.
You’re worried about fraud and won’t be monitoring the card as closely. All credit cards give you a $0 fraud liability guarantee, but you might not want to count on the issuer to flag every fraudulent charge on its own.
Keeping it open becomes a hassle, for one reason or another.
By the way, in case you’re wondering, it is possible to close a credit card that has a balance. But you’ll still be responsible for paying and will continue to accrue interest until the balance is fully paid off, even after the account is closed. You just won’t be able to make any new purchases.
Not really. As soon as you close it, your utilization ratio will shoot up, and that'll lower your score. Unless you have to pay some sort of monthly or annual fee, you can just use it from time to time, to keep it active.
The short answer is that nothing is likely to happen if you don’t use your credit card for a few months. Not using your card could actually help your credit score if you have a $0 balance when you stop (contrary to some common myths about keeping a small credit card balance being beneficial).… read full answer
The longer answer is that exactly what happens if you don’t use your credit card depends on which card you have. Some rewards cards will revoke any unredeemed points, miles or cash back you have saved up if you don’t use your credit card at all for a certain period of time – usually around 12 months. And if you don’t use your credit card for 6 months or more, the issuer could close your account. But there’s no standard timeframe for when a credit card issuer will decide to close an account due to inactivity.
Having your account closed due to inactivity could hurt your credit standing and possibly make it seem like your credit history is shorter than it really is. However, you will not be charged any sort of inactivity fee by your credit card company if you don’t use your card to make purchases or other types of transactions for a prolonged period of time. Credit card inactivity fees are banned by law.
As a result, not using your credit card (at least not regularly) can be a great strategy if you want to build credit but are worried about overspending. You just have to make sure your balance is $0 when you stop using your card. A credit card with no balance will get reported to the credit bureaus as being in good standing each month, with an on-time payment and 0% credit utilization. That in turn will lead to credit score improvement if you manage the rest of your finances responsibly.
For your convenience, we’ll summarize the key points to remember below.
Here’s what happens if you don’t use your credit card:
Nothing is likely to happen if you don’t use your credit card for a few months, as long as you make bill payments for any recurring monthly charges.
The credit card’s issuer may decide to close your account after a long period of inactivity. There is no standard timeframe, but they will often send a notice in advance and give you a chance to use your card first.
Some credit card rewards will expire after a certain period of account inactivity. You’ll also lose any rewards you’ve yet to redeem when your account is closed.
If the credit card you’re not using has a $0 balance and is in good standing, positive information will be added to your credit reports each month the account stays open.
Unpaid balances from before you stopped using the card will continue to accrue interest. If your balances have been paid in full, you won’t have to send in any new payments.
If your credit card charges an annual fee, not using the card won’t get you out of having to pay. And if you’re not getting anything out of a card that you’re paying for, you might want to close it.
The bottom line is that not using your card can still be good for your credit. And it’s far better than using your card irresponsibly. So if you don’t trust yourself to limit your spending, it may be wise to set your card aside until you have a necessary expense.
It’s better to pay off your credit card than to keep a balance. It's best to pay a credit card balance in full because credit card companies charge interest when you don’t pay your bill in full every month. Depending on your credit score, which dictates your credit card options, you can expect to pay an extra … read full answer9% to 25%+ on a balance that you keep for a year. For example, if you spent $100 on a card with a 15% purchase APR, you would owe $115 at the end of a year. A good APR is anything below 18%, as that’s roughly the average for new card offers. And even that’s not very low. Plus, most credit cards have a grace period, which means if you pay off your full balance every month before the due date, you won’t have to pay interest. But you lose the grace period if you don’t pay in full one month, and you’ll have to pay your entire balance for two consecutive billing cycles to get it back.
Some people think you need to carry a balance in order to see positive information on your credit report, but that’s simply not true. You don’t even need to use your credit card to build credit. Simply keeping an account open and in good standing is enough to affect your score for the better. Using your card regularly helps because having a credit utilization ratio between 1% and 10% is slightly better for your credit score than 0%. But credit utilization is based on your statement balance, and your monthly statement comes before the due date. So you can still pay your bill in full every month while doing right by your credit score. In fact, you should pay in full whenever possible.
Of course, it’s a different story if you’re using a 0% credit card. During the 0% APR introductory period, your balance – whether from a purchase or balance transfer – won’t accrue interest as long as you pay the minimum amount required by the due date each month. But if you don’t pay in full by the end of the 0% period, interest will come into play.
Here’s why it’s better to pay off your card than to carry a balance:
If you pay your bill in full each month, you won’t be charged any interest. However, if you don’t pay in full one month, you’ll lose your grace period, and your purchases will begin accruing daily interest right away. You can get your grace period back by paying in full for two consecutive billing cycles.
You don’t need to carry a balance for a credit card to help your credit score. What matters most for credit building is meeting due dates and keeping credit utilization below 30%.
Paying your bills on time doesn’t require you to pay your balance in full each month. You just have to make the minimum payment listed on your statement. But if you take on too much debt, you may find it hard to make your monthly payments.
Carrying a balance makes it harder to keep your credit utilization low, since your everyday spending will be added on top of the amount you’re carrying from month to month. It’s best to use less than 30% of the credit made available to you.
So, to recap, it’s better to pay off your credit card than to carry a balance because it builds your credit history just as well without subjecting you to interest charges. And remember, not carrying a balance does not mean you have to stop using your credit card. There is a middle ground. A balance will be listed on your credit card statement whenever you make purchases, but if you pay that amount by the due date, you won’t really be carrying a balance.
Closing a credit card with a balance is possible, and it can be beneficial when a credit card company changes your account’s terms for the worse, such as raising the annual fee or APR. It can also be a good idea to remove the credit card itself from the situation if you want to pay off the existing balance without the temptation to spend more. Closing a credit card doesn’t cancel the balance owed, nor does it make the entire balance due immediately. You will have to continue making at least the minimum payment due each billing period until the balance is paid off. But closing the account will prevent you from making new purchases.… read full answer
There are a lot of factors to weigh out when deciding whether or not closing a credit card account is the best idea, so it’s wise not to do it in haste. Before you take action, consider what happens if you cancel a credit card with a balance.
Here’s what happens when you close a credit card with a balance:
You will still owe your balance. You won’t be forced to pay the balance on the closed account right away, but you must continue making at least the minimum payment due each billing period. Interest will still accrue, and the minimum amount due will steadily increase. Every card issuer will have different rules for this situation, and you may find information about it in your card’s terms. If not, you should call customer service to find out as much as you can from your card issuer before agreeing to close the account. If you’re thinking about closing the card so you can finally pay it off, consider a balance transfer, a payment plan with your card issuer, or a credit card consolidation loan.
Any rewards you have earned will likely be lost. Make sure to use any remaining rewards on your existing card, as they’re likely to be forfeited when you close the account. Plus, it can’t hurt to pay down a bit of your balance by redeeming for cash back.
It will affect your credit score. If the credit card is one of your oldest credit accounts, your average credit age will shorten. Your credit utilization could also go up if you have balances on other credit cards, too. Both of these will have a negative effect on your credit score. If you plan on applying for a loan or financing a big purchase anytime soon, check your credit score first to make sure you can afford to take a hit.
All in all, closing a card with a balance is rarely the best option. There are alternatives, but not all of them are available to people of every credit level – such as a good deal on a balance transfer credit card. If you’re willing to endure a potential hit to your credit score in exchange for the long-term health of your finances, closing an account with a balance can be a way to get yourself on track. Just make sure you understand the repayment terms before you act. Closing a credit card with a balance does not get you out of paying that balance.
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