If you’re considering closing a credit card account, there’s one thing you should know: it could have an impact on your credit score. Whether you’re trying to improve your financial health or simply simplify your life, it’s important to be informed about the potential consequences of closing a credit card before making any decisions.
In this blog post, we’ll break down how closing a credit card account can affect your score, and what you can do to minimize the impact. So read on to learn more.
Why Closing a Credit Card Account Can Impact Your Credit Score?
Closing a credit card account can have a significant impact on your credit score. Even though it may be tempting to close an account in order to avoid fees or interest charges, this action could end up hurting your credit score instead of helping it. Closing an account decreases your overall available credit, affects the length of your credit history, and can impact the amount of debt you currently have. This will result in higher utilization rates which could really hurt your credit score in the long run. Make sure to consider all aspects before making any decisions about closing a credit card account to preserve or improve your credit score.
How Long the Impact Will Last?
Closing a credit card account can have an adverse effect on your credit score, as it lowers your overall credit utilization rate. The severity of the decrease will depend on several factors, including the length of time that the card was open and whether you had any delinquent payments. Generally speaking, , it’s important to note that the impact of closing an account could be long-term, potentially sticking around for up to two years or more on your credit reports and affecting your score in a negative way. It is always wise to think carefully before closing a credit card, as there could be serious repercussions.
Ways to Avoid Negative Impacts to Your Credit Score?
There are various measures to help prevent your credit score from taking a negative hit if you are considering closing a credit card account. It is highly recommended that before you close an account, you should examine the closure’s potential impact and weigh it against the payment history and total amount of debt, as well as other factors. It can also be beneficial to pay down or off any amounts owed before you close the account and keep accounts with long-standing history open for a higher overall credit score. Furthermore, diversifying your credit mix by having a combination of different types of accounts such as regular installment loans and revolving lines of credit can be beneficial for avoiding an unfavorable change in your score.
What to Do If You Have Already Closed a Credit Card Account and Your Score Has Dropped?
Figuring out what to do if you have already closed a credit card account and notice a drop in your credit score can be intimidating, but there are some steps you can take to help restore your score. One of the most important steps is to make sure that all future payments are made on time, as this will help build a positive payment history. Moreover, it’s wise to maintain low balances, as this will reduce the amount of debt increase overall utilization rate. Finally, although it may seem like a daunting task, consider opening another credit card account with a reputable lender. Doing so can help establish more available credit, bring higher utilization percentages back down again and give you an opportunity to start fresh with building a better credit profile.
How to Improve Your Credit Score in The Long Run?
Improving your credit score in the long run may appear daunting, but there are key steps to achieving and maintaining an excellent score. One of the most beneficial strategies is to avoid closing existing credit card accounts since doing so can lead to a significant but temporary drop in your credit score. Keeping an old account open for a longer period of time creates a positive effect on your credit history as overdue payments or late fees won’t be reflected in your current score. Additionally, having older lines of credit that are responsibly managed will demonstrate financial responsibility to potential lenders. Building healthy credit ultimately reinforces a trusted reputation among other firms and increases borrowing power for positive financial habits down the road.
Conclusion
Taking the time to understand why closing a credit card account can impact your credit score, as well as what steps you can take to either avoid it or minimize its effects, is essential for any budgeting process. Despite its potential drawbacks, shutting down an existing card may be necessary if you think that it’s in your best interest. A good way to minimize the impact of canceling a card is timing the closure around other positive actions like continuing positive repayment behaviour and keeping old accounts open with little activity. Making smart decisions about spending and paying off the balance on your cards promptly will help create a strong credit history while potentially improving your credit score over time.
For more information and tips to help you choose the best credit card in NZ, visit our website Credit Cards Compare.
