If you have one or more credit cards in your wallet that you rarely or if ever use, you may be thinking about closing these accounts. You might have replaced them with newer credit cards that have a better rate or terms. While it might seem pointless to hang onto credit cards that you no longer want, there are reasons why you might not want to close that credit card.
Total Available Credit
One of the factors that are considered in determining your credit score is your credit utilization rate. This is the percent of available credit that you’re using. If you close a credit card that you aren’t using, the total amount of available credit you have when you add together all your credit lines goes down. At the same time, the percentage of available credit that you’re using goes up.
The goal is to keep your credit utilization rate below 30 percent whenever possible. Before closing a credit card account, think about the total available credit on your remaining credit cards, and consider how it will affect your credit utilization rate.
Age of Accounts
Another factor that goes into your credit score is the age of your accounts. This refers to the length of your credit history. Accounts that you’ve handled well for a long while are a sign of stability. If the account you’re closing is one of your oldest accounts, the average age of your accounts will drop. If it’s one of your newest accounts, it won’t hurt the average age of your accounts if you decide to close it.
Reasons You Might Want to Close That Credit Card
There are some reasons that closing the credit card account may make more sense than leaving it open. If you opened a credit card account with an annual fee because you had no credit or were trying to rebuild credit, you may want to close the account to avoid paying the annual fee.
The other thing to consider is how tempted you’ll be to use the credit line if you leave it open. If you think you won’t be able to stop yourself from using the account, closing the line may be a good idea.
Be Proactive About Your Credit
The information on your credit report and your credit score are both used to make credit decisions that may affect you in the future. That’s why it’s important to be proactive about your credit. This means paying your bills on time, keeping your credit utilization low, and thinking through decisions such as whether to close a credit card account or take out new credit. It also means making sure the information on your credit report is accurate.
If you find errors on your credit report, it’s important to dispute them immediately. Dovly is an automated credit repair engine that can help you with this process. When we help you remove errors from your credit report, your credit score will go up. Get in touch with Dovly today.