Credit Cards

Is it a Good Idea to Close your Credit Card Accounts as I Pay Them Off?

Closing your credit card accounts can negatively impact your credit scores, so it may be best to leave your credit card accounts open after you pay the balance in full.

Leaving the card open means you will still have the available credit limit on your card, which will likely help your credit utilization rate. To calculate your overall utilization rate, add up all your credit card balances and then divide them by the total of your credit card limits.

The lower your utilization rate, the better for your credit scores. When you close a credit card account, you lose the available credit limit for that account, which can increase your utilization rate and hurt your credit scores. On the other hand, paying off your credit cards and then keeping them open will result in a lower utilization rate on each individual account as well as a low utilization rate overall.

If you don't need or want the credit cards and your credit scores and credit history are in good shape, closing one account may not affect your credit scores significantly.

However, if you are planning on applying for credit in the near future, it's best to hold off on closing any accounts until after the application process. You need to make sure your utilization rate does not increase and cause a dip in your credit scores that could impact you during the application process.

For example, if you are planning to apply for a mortgage loan, it's generally best to leave the account open until you complete the process and have the keys to the house in your hand. Closing an account could cause a temporary drop in your scores, which might affect your ability to qualify or cause you to have to pay a high-interest rate. A small change in rates can equal thousands of dollars in interest for a mortgage loan.

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Scoped on: 10/09/2018