Will closing a credt card hurt your credit score?

Many people in Atlanta have probably experienced some sort of frustration with credit cards. Maybe you ended up over your head in debt after a job loss or medical procedure. Others may simply feel that they have become too reliant on a credit card or two. In either of these situations — and many others — people often consider closing a credit card. There are some situations, however, in which closing a credit card may do more harm than good.

One reason to keep a card open is if you are trying to build up good credit. If you don’t have overwhelming debt, continuing to use a credit card occasionally for small purchases can maintain the good credit you have established. By closing the card, your good credit won’t show up on your credit report in seven to 10 years.

Another reason to keep a card open is to keep your utilization rate low. Your utilization rate is your credit card balance compared to your limit, and it encompasses all credit cards you have. The lower your utilization rate, the better your credit score. So, if you have a $1,000 balance on a card with a $2,000 limit and have no balance on a card with the same limit, and you close the second card, your utilization rate will go from 25 percent to 50 percent.

There are some situations, however, where closing your credit card is best. If you have a habit of overusing a credit card, closing it may be the best choice. Although you will still be responsible for paying down the balance, getting rid of a card that tempts you to overspend is probably the right call.

Source: U.S. News & World Report, “When to Perform Plastic Surgery on Your Wallet,” Bethy Hardeman, March 27, 2014