Delmaine Donson/Getty Images
You can close your credit card with balance, but there are plenty of details to keep in mind before doing so. First of all, you need to plan to pay off any remaining debts before closing your card. Also, the reason for closing your card is to keep it open until your balance is repaid (and even later).
Close your credit card with balance can hurt your credit score even if you’re not adding any debts. Still, read on to learn everything that can happen when you close your credit card.
What happens when you close your credit card with balance?
When you close your credit card and you are still borrowing the balance, the debt you owe will not go away. The card agreement will remain applicable, but you are still legally liable for repayment. The following continues as normal:
- I will continue to receive my credit card statements via email. As long as you have a balance, you will receive a typical credit card statement by mail each month, but the minimum payment required for your credit card will continue to be paid each month.
- Your credit card balance will be of interest as always. Your credit card balance will continue to earn interest (including remaining interest) until the balance is paid in full. Credit card interest rates usually fluctuate and may change over time. Issuers do not need to notify you in advance if they raise interest rates as a result of changes to the Federal Reserve target rate. However, credit card companies usually need to send you a notification 45 days before you raise your interest rate.
However, credit card issuers cannot raise annual fees or charge new fees after closing their credit card. Close your card with your balance helps you avoid paying annual fees for credit cards that are no longer in use (if closed cards charge you).
How does closing your credit card with balance affect your credit score?
A credit card account that is closed in good condition can only stay on credit reporting for 10 years and can support credit scores as a result, but a closed account or other negative mark with a late payment can only stay on credit reporting for up to 7 years. This factor may not affect your decision at all, but it is worth knowing how long a closed account affects your credit score.
Generally speaking, if you want to keep your credit in good condition, you should not close your credit card with your balance or with your credit card you haven’t actually used. This is because closing the card will affect these two key factors in your credit score.
- Credit History: The average length of your credit history accounts for 15% of your FICO score, so closing your account can hurt your credit score in the short term.
- Credit usage: Closing your credit card account can also affect your credit usage rate or your debt to the total amount of credit available. This factor accounts for 30% of your FICO score, so if you have a lot of debt, the impact of closing your card can be important as you use more credits available.
Pros and cons of closing your credit card in a balance
Your personal financial situation will ultimately determine the best move for you, and that is closing your credit card regardless of the potential impact on your credit score. For example, if you continue to get into financial trouble using your credit card and are desperate to break the cycle, closing your card with balance may be the best step.
Before you move forward, consider the potential benefits and disadvantages of closing your credit card in balance.
Do I need to close my credit card in balance?
If you can’t avoid closing your credit card or you don’t need to close your card, it’s almost always better to leave your account open. This is especially true if you are trying to improve your credit score, or at least not hurt it, and if you have a reward balance, you haven’t used it yet. Plus, you can consider leaving your card open as an emergency credit line, even if you don’t have a real plan to use it.
Also, don’t forget that there is a balance instead of closing your credit card. For example, if you’re tired of paying your card’s annual fees, you can call the card issuer and ask about a downgrade to another card option that you won’t charge. Alternatively, if you have any liabilities you want to consolidate and pay back, you can transfer your balance to a balance transfer credit card that offers a 0% intro APR over a limited time.
Conclusion
Technically, you can close your credit card with balance, but that’s not what you should. Ideally, to avoid any impact on your credit score, you’ll want to keep your card open so that you can access this credit line due to an emergency while paying off your debt.
That being said, you may decide to close the card just because you feel it’s right for you. Only you know what you can handle. If closing your credit card account will make you even better, you need to be confident in your decision and move forward by closing your card.
