Q: I have an old credit card that is paid off. I never use it. I’ve kept it open because I thought closing it could negatively impact my credit score. My creditor has informed me that they will be closing my account due to inactivity. Would it be better for my credit if I closed it myself instead?
A: If the account is in good standing, it’s not necessarily who closes it that matters. You could close it since they plan to anyway or let them do it. Either way, check your credit report afterward to make sure that the account is listed as “closed” or “closed at lender’s request” as appropriate.
To minimize any negative impact on your credit score that an account closure could have, there are other important steps to take:
- First, call the creditor and ask for more information about why the card is being closed, and see if they may be willing to restore the account. Keep reading and you’ll see why this could be beneficial.
- Regardless of the outcome of your call, you should assess your current credit utilization rate. Your Credit Utilization Rate is the ratio of credit you use to how much you have available. According to Equifax, one of the 3 major credit-reporting agencies, it’s best for your credit file to use less than 30% of your available credit.
- If one of your accounts is closed (by you or the lender), you’ll have less available credit, which typically results in a higher credit utilization rate. Continue paying down other debts to lower this ratio, to where you’re using less than 30% of your available credit.
- Consider how long you’ve had the account that’s being closed. Having a longstanding, active account that is paid in full each billing cycle is a plus (provided you’re not nearly maxing it out each month).
- If the card being closed is one you’ve had for a very long time, and the creditor will not keep the account open at your request, look to your next ‘oldest’ account and continue to keep it in good standing, use it lightly, and pay it off in full every month.
These are considerations for the scenario listed above. These are not the only factors at play in determining your credit score. Read more in the Your Financial Life Series – and work with a reputable credit counselor if you need assistance.
Tip: Even better for your score than using less than 30% of your available credit is using less than 20% or 10%.
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