Should You Close Your Credit Cards? Will It Hurt Your Credit Rating?
You may have numerous credit cards that you aren’t using and have no balance. Some may be old, credit cards that you opened just to save at the time of your purchase and some that you just don’t want to use anymore for whatever reason. You may have worked hard paying your cards off and feel great about not having anymore debt on these cards. The question is, to close or not to close? Should you close credit card accounts if you’re not using the card anymore? Will closing your credit card hurt your credit score/rating? The answer is most always, YES! Closing your credit card accounts will have a negative impact on your credit score… if you still need a good credit score to buy a big ticket item like a car, home or loan.
The major credit bureaus want to see that you have available credit. The more available credit you have, the better. Each credit card you have adds to that number. If you have say, 6 extra credit cards that you’re not using and they total thousands of dollars of available credit, this is a good thing and keeps your ratio low. This tells the credit scoring companies that you are not “strapped” for credit or desperate. A desperate borrower is a risk. Most banks do not want to take on that risk. You could take a hit on your credit score by closing any account you have and lowering your “available credit” amount.
So, you have these credit cards that have $0 balance, but you’re not using them. Why keep them? Well for one, the age of the established credit will help strengthen your credit score. The longer you have credit, the higher you rank. The older, the better. Closing a credit card that is old hurts more than a newer line of credit. The longer you have a credit card, the better chance you have of them increasing your credit as most companies increase in increments throughout the years. This builds your available credit amount which as you read above is important! It shows that you have many lines of credit and do not need them. This shows confidence, stability, trust and responsibility. Those are the main factors that determine the behind the scenes opinion when determining your score and decisions by creditors.
What if your credit cards have a yearly fee? Isn’t it wise to close them if you’re not using them? Perhaps, but not always! You will need to determine the best option for your life, needs and future. For example, if you will need more credit down the road perhaps you will be buying a home, a car or other large ticket items, you will want to get a good interest rate and be approved. Your current credit cards help keep your credit rating high so that you will qualify for the best loans available. Getting a low interest rate could save you a lot more in the long run than a few monthly or yearly fees attached to your existing credit card accounts.
If you are settled in your life with no expected large purchases, you may not need the best of the best credit score. It may be wise to close your accounts if you are okay with your credit rating going down. Make sure you have all your life needs covered first. Obviously we never know what will come up or what surprises our life will be dealt, but if you’re confident that you won’t be making any more large purchases that require financing, saving the yearly or monthly fees associated with your lines of credit will be more beneficial.
What should you do with all these credit cards that you aren’t using? The best thing to do to boost your credit score is use these cards every six months or so. Use them all at or around the same time. Make very small purchases on them. Any amount will do! Pay them all off right away. If you do this a couple times a year, you will dramatically increase your credit score. Why? It shows that you are active, current, still responsible, and still don’t need all of your credit line. It adds to your payment history which is the most important part of your credit score. Those on-time payments and using them will continue to give you a huge boost to your credit rating sometimes up to 100 points!
Keep your credit cards in a secure place if you’re not using them and review them occasionally. Make sure you keep up with the terms of service for each card so that there are no changes that could hurt you like a minimum yearly purchase or a new fee added that you miss. Also review them occasionally for due dates. Sometimes credit card companies change your due date. This could seriously hurt your score if you miss a payment or pay late.
As always, if you need assistance with building good credit, obtaining a home loan, or buying or selling a home, I’m always here to help! Contact me anytime with credit questions, to get pre-approved for a mortgage or to start the home buying process.