Should You Close Paid Credit Card Accounts?

You have just paid off your credit card and taken a big chunk out of your debt in the process. Congratulations! Now, you face a question: Does it make sense to close a paid-off credit card account? Should you close a paid-off credit card account?  

In some cases, it does make sense to close such credit cards. Most of the time, however, getting rid of a $0 balance credit card may actually hurt your credit score. 

When Should You Cancel a Paid-off Credit Card

There are a few situations in which it might make sense to close your credit card account entirely. Here are the most likely cases where it could be a good idea:

• If you feel that your card may be a target for identity theft 
• If the card carries yearly rates, high interest, and a low credit limit 
• If you think that you will be tempted to use it again
• If it is a jointly held card and you are in the midst of a separation or divorce

It is important to note that once you cancel a credit card, you will not be able to re-open the account. So, think carefully before you make that decision.

Why Not Close a Paid-off Credit Card?

Just as there are some valid reasons for closing a credit card account, there are some equally valid reasons for leaving a credit card account open even when you have no intention of using the credit card again. Here are a few of them:

• If you've had the credit card you are considering for cancellation for a long time, its disappearance from your financial profile can impact your credit score because one of the factors weighed to determine your credit score is credit history length. 
• If your card carries a high credit limit, coupled with its $0 balance, it will boost your credit utilization ratio. Credit utilization makes up around 30 percent of your credit score. By removing this extra available credit from the lineup, you lower your overall credit limit and thus hurt your credit utilization ratio. 

• If the credit card is the only one you have, you should keep it open as it will continue to contribute to the diversification of your credit profile. 
• If you are about to apply for a loan, you should avoid closing your credit card account because of the likely effect its closure will have on your credit score. 

What to Do Before You Close Your Credit Card Account

If you decide that closing a credit card account is the way to go, here are some reasonable steps to take:

• Make sure to use up all the available rewards in your account before you cancel the card. 
• If you cannot pay off your balances in full, at the very least, pay as much as possible. You have many options for credit card help, depending on your financial situation. 
• Request the closure of your credit card through a certified letter to your card issuer. Ask for information on your balance in that same letter. 
• Obtain written confirmation of the paid-off status of the account. 
• Verify your credit report 30-45 days after the closure of your card to confirm it reflects the closure of the account. (Information about the credit card account will remain on your credit report until its reporting time limit expires.)  

Get Help to Pay Off Credit Card Debt

If paying off your credit card accounts seems like something that will forever be out of your reach, know that you can achieve a debt-free life with some help. You do not have to try to handle it all on your own. There are a number of debt relief options from which to choose, and you owe it to yourself to explore all your options.

Call a ClearOne Certified Debt Specialist at 866-481-1597 today to discuss your situation, explore your options, and get a free savings estimate.