Whether you have some balance left or have zero balance, you can close your credit card, canceling it more likely. Usually, it is preferable that you close or cancel your credit card after achieving a zero balance. It is preferred because this will have a minimum negative impact on your credit score.
In case you have some balance left, go for credit repair NYC so that even if the balance is zero and your credit score shrinks, you can still recover it by using strategies suggested by experts.
Whatever path you select, remember one thing: closing a credit card can either impact your credit score negatively or it can be a blessing and positively impact the score. This is the same whether you live in New York City or any other part of the country.
However, the extent of these impacts depends on several factors, including your overall credit profile and financial situation. Next we are going to discuss what you should know about the impact of closing a credit card on your credit score in NYC.
Credit utilisation ratio
One of the most important factors that the process of closing your credit card has an impact on is your credit utilization ratio. This ratio is the amount of credit you’re using compared to your total available credit.
To explain it further, remember that your available credit decreases when you close a credit card. This can lead to an increase in your credit utilization ratio if you carry balances on other cards.
For example:
- If you have a total credit limit of $10,000 across three cards
- You carry a balance of $2,000
- Your credit utilization ratio is 20% ($2,000 ÷ $10,000).
- If you close one of those cards with a $3,000 credit limit, your available credit drops to $7,000, and your credit utilization ratio increases to 28.6% ($2,000 ÷ $7,000).
- Higher credit utilization can negatively impact your credit score.
Length of credit history
The length or age of your credit history is also important at the time when you close your credit card. The older the credit account, the better or the positive your credit score will be.
So, in case your credit account is older and you decide to close the account, there is a higher possibility that your credit card score will decrease. This happens because the average age of your credit history is shortened.
Payment history
Your payment history is a decisive factor in your credit score. Whether your credit score is impacted soon or later, it usually depends on your credit history.
The thing is, if your credit history is positive, closing your credit card will not impact your credit score immediately. This means it is good for you if you used to make payments on time.
However, if your payments are usually late, and then you close your credit card, even if it is closed or canceled, the negative information will still keep impacting your score negatively for a very long time.
Credit mix
Credit scoring models use the information of the types of credit accounts you have, including:
- Credit cards
- Installment loans
- Mortgages
So, when you are closing a credit card, it may reduce your credit mix diversity in case it was your only credit card account. This has the ability to affect your credit score theoretically.
Credit goals and financial situation
Your financial goals and your financial situation both should be part of the formula where you decide to close a credit card.
For example, say you have a lot of credit cards, and some of these have high fees. So, you are going to cancel those. It makes sense. Of course, you will decide to close the credit cards that are negatively impacting your credit score.
However, if your financial situation is strong and your credit score is also high then based on the financial plan you have, you can let multiple cards remain open responsibly.
This actually has the potential to impact your credit score positively.
Strategic closures
If you decide to close a credit card, consider doing it strategically. For instance, start by closing a credit card with a lower credit limit or one that carries an annual fee. At the same time, keep your oldest and highest-limit cards open. This will minimize the negative impact on your credit score.
Takeaway
When you are thinking of closing one or multiple credit cards, make the decision thoughtfully and strategically. When closing a credit card, consider your overall financial situation and credit goals as well.
If you’re concerned about the impact on your credit score, consider consulting with a financial advisor or credit counselor to make an informed decision. Additionally, regularly monitoring your credit report and score can help you track how closing a credit card affects your credit profile now or in the future.
Samantha Green, a psychology graduate from the University of Hertfordshire, has a keen interest in the fields of mental health, wellness, and lifestyle.
