A quick money tip from Lynnette Khalfani-Cox, The Money Coach®
If you’ve recently paid off a credit card, you might be tempted to close the account. But don’t! Canceling credit cards can often backfire on you, by causing your credit scores to decline.
How is this possible? Well, 15% of your FICO credit score is based on the length of your credit history. When you close an account, that credit card is no longer considered “active” in your credit profile. Additionally, 30% of your credit score is tied to your credit utilization — the ratio of your loan balances verses your total available credit. Closing an account and having less available credit can push your credit utilization rate higher — making you appear to be a riskier borrower. The result: your credit score drops.
To avoid this fate, do yourself a favor: once you successfully repay a credit card in full, don’t cancel it. Put the card aside if you no longer want or need to use it.
Keeping your card active can boost your financial well-being in two ways: you stay out of debt and you keep your credit rating in tip-top shape.
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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative or financial advisor who can help tailor a solution for you.
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