Does it hurt my credit to close a credit card once I've paid off the balance?

Question

I have a credit card which has an annual fee. I've paid off the balance and want to close it because I have another credit card with no annual fee. I've been told that if I close it, it will look bad on my credit. Is this true? Is it better to leave it open? I've been told that if you have $0 balance and leave it open, it's good for your credit. Just trying to get the truth!

Answer 1

Close the account. Your score will take a small hit but should rebound quickly.

You may want to consider how many other tradelines you have and how long you've had this card. When you close the account, you close the history. If you've had that card for 5 years, you lose all that history which could be a big impact if all your other tradelines are new.

Personally, I would cose anyway or at least call the credit card company and tell them you intend to close the account unless they eliminate the annual fee. They may do it.

Answer 2

No, it does not hurt your credit score to close an account you don't intend to use, and I especially encourage it when there's an annual fee on the card.

Your payment history is still going to show up on your credit report. Among other things, the report will show the day you opened the account, your highest balance, when you paid it off, and the fact that you asked the lender to close the account. CLOSING THE ACCOUNT DOES NOT MAKE YOUR PAYMENT HISTORY DISAPPEAR FROM YOUR CREDIT REPORT - if it did, people would just close all bad accounts, rather than file bankruptcy. Even when the account is closed, your payment history is still clearly on your credit report.

I personally close all accounts that I don't intend to use again, because too much available credit can be looked upon unfavorably by potential lenders.

Answer 3

Your credit score is composed of several parameters, but one of them is your credit card debt to credit card limits ratio. For example, lets say you have 3 credit cards and your "open to buy/credit card limit" on each one is $1000. This means that you have $3000 in available credit. If you owe $1000, you are using 1/3 of your available credit. If you close one of the cards that you have paid off, then you have $2000 available credit, and are using 1/2 instead of 1/3 of your available credit. This is why, if you have several credit cards, it is better to leave the "no annual fee" ones open, if you have the willpower not to use them, because it improves your debt-to-credit ratio. In the case of the card with a fee, I would close it. Good Luck.