Credit Cards

Courtesy Metro Creative 

Credit cards offer many advantages such as providing a measure of insurance when making purchases and enabling an individual to develop a healthy credit score through prompt payment of balances.

The experts at Credit Karma say that there is a common belief that closing a credit-card account will always negatively impact one’s credit rating, but that isn’t always the case. Getting the facts about when it can be advantageous to close accounts or keep them open can help consumers maintain strong financial reputations.

Utilization ratio

Financial gurus at say closing credit cards can affect the percentage of consumers’ available credit, which may affect their credit ratings. Closing a particularly high-limit card will increase the percentage of used available credit when spread out across the remaining cards, also known as the utilization ratio. A higher percentage of used available credit can negatively affect credit scores. Consumers who currently carry high credit-card balances may be smart to keep existing lines of credit open or request increases on the credit limits of accounts they intend to keep before closing some current accounts.

Annual fees

It can be wise to close credit cards with high annual fees if the benefits of the cards are no longer proportionate to the amount spent on the fees. If cards are being held only for perks, it may be possible to find a different card that does not charge an annual fee.

Age of credit history

Discover indicates that if a consumer must close a credit-card account, they should avoid closing the oldest one. The longer an account has been open, the better it is for a credit score because it establishes a long credit history. According to FICO, the length of consumers’ credit histories account for 15 percent of their credit scores.

Fraud or theft

In the event a card is stolen or used fraudulently, consumers may opt to close the account so no other purchases can be made. However, creditors also work around this by keeping accounts open and simply issuing a new card number.

Closing a credit-card account has its advantages and disadvantages. Consumers should investigate the risks before closing a given account. 

 – Courtesy Metro Creative