Will Closing Credit Cards Mess Up My Credit?

Oct 30, 2020

We love our credit scores.

Here are two sets of questions and answers related to cutting back on credit from a recent presentation I did.

 

  • Suggestions for unloading ‘available’ debt without it negatively impacting credit score.

I’m interpreting this question to mean “I have a lot of credit cards and want to close some of them as I pay them off.  Will this hurt my credit?”

Let’s say you have 5 credit cards.  4 are maxed out and one is paid off.  If you immediately close the paid off one, you will reduce your access to available credit, which means you will be using a higher percentage of your available credit, which yes, will ding your credit.  My suggestions are

  1.  Worry less about your credit score -> https://lisaduke.net/your-credit-score-is-not-your-adult-report-card/
  2. Understand that “if you are using a lot of your available credit, this may indicate that you are overextended—and banks can interpret this to mean that you are at a higher risk of defaulting.” https://www.myfico.com/credit-education/whats-in-your-credit-score

So a good compromise would be to keep paid off card 5 open while you pay off card 4.  Then close card 5.  Once card 3 is paid off, close card 4.   Something along those lines so you always have a bit of available credit but you can still reduce down your temptations for yourself (or for potential fraud!).

  •  I just paid off my first credit card (yay!) and I've heard mixed information on how to manage that account. Should I close the account, purchase something like gas and then pay it off once per month, etc.?

Wooohooo!!!!!!

If you have more than 2 credit cards, eventually yes, I’d close it – just keep an idea on your debt utilization ratio (see link to FICO above) so you don’t close it off and make it so you have no access to credit.  In the meantime, using it twice a year or once a quarter should be enough to keep the bank from closing it on you before you are ready.

When you do use it, yes, I’d pay it off in full.

Are you ready to change your financial life?  If so, I can help.  Schedule a time to talk to me about options for working together at https://lisaduke.net/schedule