Let's say you have three different credit cards.
If you decide to close an unused card, you are reducing your available credit without decreasing your credit usage. If it's high, this indicates that you're probably spending a lot of your monthly income on debt payments which can put you at a higher risk of defaulting on your payments. When it comes to your credit score, you want to keep your utilization low. Your utilization essentially measures the percentage of your available credit that you're using, and it makes up about 30% of your credit score. Your credit utilization is the amount of your credit card balance compared to the credit limit. The truth is, it's more likely that closing a credit card (even one with a zero balance) will hurt your credit score rather than help it. It's a common misconception that closing your credit card will increase your credit score. To me, this is a waste of money! THE CONS OF CLOSING YOUR CREDIT CARD Some credit cards will even charge you an inactivity fee, which means you're paying the credit cards for not using it. If you are not using it anymore, canceling the card will save you those costs each year. For example, many cards charge you an annual fee just for having the card. If your credit card is charging you fees, you should think about closing it. Read: Credit Card Disputes: Understanding Your Rights.If you have a spending problem or are managing a heavy debt load, it might make sense to close some cards as you pay them off to minimize your temptation to spend. Not being able to use your credit card forces you to avoid future debt. The number one reason most people choose to close their credit cards is to avoid temptation. In my opinion, there are only two real benefits to closing your credit card after you pay it off. If you were to ask me right now if you should close your credit card, my answer would be, “Probably not.” I have decided to close credit cards in the past, but I did so without thoroughly thinking things through. Many of you asked, why did I decide to cut it up and did I close my credit card account after paying it off?īefore I talk about what I decided to do, let's talk about the pros and cons of closing a credit card after its paid off. In my picture, I showed you the cut up credit card in little pieces lying next to a pair of scissors. This week on Instagram, I shared with you that I finally paid off my Chase Credit Card. Do you leave the card open or should you close it? You might be wondering what to do with your credit card now that it's paid off. Congratulations! You finally paid off your credit card! You worked long and hard, and it has finally happened! Your credit card balance is down to zero!