When you are trying to pay down or stay out of debt, it may seem like a good idea to pay off a credit card and close the account as quickly as possible. But the truth is, closing a credit card account may do you more harm than good.
Why? Because owning a credit card is a key factor in building credit. A relatively inactive account is more favorable to your credit score than a closed account.
To understand this concept better, let’s look at how owning a credit card can help boost your credit score:
- 35% of your credit score comes from positive payment history. Paying your credit card on time gives you positive payment history on your report, provided the card issuer is reporting payment to the credit bureaus. Using your credit card occasionally just to boost your payment history is recommended.
- 30% of your credit score comes from credit utilization, the ratio of your credit limit to your credit card balance. A credit utilization score of 30% or less enhances your score. Therefore, even if you have a card you rarely use, your credit utilization score for the card will be close to 0%. Another point worth considering is the fact your credit score is also affected by the combined credit utilization score for all of your credit cards put together. Having a credit utilization ratio of 0% on one card lowers your overall ratio.
- 15% of your credit score comes from average age of accounts. The older your accounts, the higher the average age. An average age of 7.5 years is best for improving your overall credit score.
- 10% of your credit score is impacted by the variety of loans you have. Loans such as mortgages and car loans are installment loans, meaning they are a fixed amount. Credit cards are revolving lines of credit, which are a different type of credit. Having a mix of credit types on your report is better for your credit score.
Despite all the ways owning a credit card can help improve your credit score, there may be situations where it is necessary to close a credit card account. However, before you go ahead and close it, you may want to consider these few important points:
- To close the account properly, call the customer service number on the back of your card and speak to an agent.
- If you have a reward card and intend to take advantage of the rewards, ensure you use them prior to cancelling the card.
- Pay off the credit card in full. You cannot actually close an account with a balance owing. If you can’t pay it off right away, have the account frozen. You will continue to accrue interest, however, you will not be able to place any new charges on the card.
- Even if your balance is zero, ask the customer service agent if there are any fees or charges associated with closing an account. Your final statement may not be $0 if this is the case.
- Be aware your credit card may require some activity to remain open. Inactive cards run the risk of being closed at the lender’s discretion.
In short, keeping a credit card open is usually a good idea. If you are unsure of what is best for your particular situation, it is recommended you talk to a credit repair professional who can give you the advice you need to break free from past financial burdens.
Contact Great American Credit Repair Company today at 1-800-491-6578 and let us show you how you gain the financial freedom you deserve.
About Great American Credit Repair Company
Great American Credit Repair Company is a highly recommended credit repair company and a FICO Pro Certificate holder, with credentials from the National Association of Credit Services Organizations. Great American Credit Repair Company offers the only Money Back, Triple Result Warranty in the industry because we are confident we can deliver the results you need.
How does Great American Credit Repair work to restore your credit? Approximately 79% of all credit reports contain errors and aren’t verifiable. At Great American Credit Repair Company, we know most people don’t earn the credit score they deserve and will investigate every negative aspect of your credit report every single month to make sure you get the highest credit score possible.
Great American Credit Repair Company…….because you deserve a fresh start!
Call us today at (800) 491-6578 or visit us at http://greatamericancreditrepair.com for you FREE consultation and to get more information on how you can regain your financial freedom.