You’ve worked hard to pay down your credit cards. Now that they’re paid off, your first inclination may be to close the accounts. Before doing so, you should know that this may actually hurt your credit score. Here’s why you shouldn’t cancel old credit cards…
- Credit History of Old Cards
Older credit cards provide valuable payment history. That history carries more weight when your account remains active. - Debt Ratio
Credit bureaus evaluate how much credit you have available versus how much you are actually using. Closing an account reduces the credit available and thereby increases the relative percentage of your remaining debt. - Types of Accounts
It is healthy to have different types of debt (mortgages, loans, and credit cards). Closing all of your credit cards may offset this balance.
It is much better to have active credit cards with zero balances than to close out those accounts. Zero balances show that you do not “need” to use the credit available to you. It implies that you are more financially stable. This typically results in a higher credit score. Higher credit scores will make more opportunities available to you in the future. When you go to purchase a car or a home, you will qualify for better loan programs and interest rates.
We hope this information on why you shouldn’t cancel old credit cards was useful. Please follow our blog for additional credit tips and tricks. For assistance with credit repair, feel free to give us a call. We would be happy to assist you!