Never Close a Credit Card

You should never close a credit card unless you are really in a dire situation with no other choice. Closing a credit Card will do some damage to your credit score so think wisely before heading in this direction.

Thinking of closing your credit card? Here's why you should re-think this decision.

1. Credit Score Drop

Your credit score will see an immediate drop in points as a result of the following.

a. Utilization.

Let's say that you have 2 credit cards, Card A has a $3,000 credit limit and Card B has a $1,000 limit. Card B has a $500 balance owed. Card A is fully paid off and has no balance. Your current Utilization is 12.5%. Let's say for argument sake that you one day decide to close Credit Card A because of its lack of Cash Back rewards. You will be left with Card B with a $1,000 credit limit and a $500 balance. Your Utilization will then skyrocket to 50%.

b. Credit History.

The length of time each credit card has been opened has a medium impact on your credit score. The longer you have had a card opened the higher your score will be by a few points. Let's say that you have had Card A for 10 years and Card B for 2 years, your average Credit History will be 6 years. Removing Card A will bring your Length to 2 years. Your score will skyrocket down.

c. Only Card.

If this is your only card, forget closing it. If you are concerned about interest rates then don';t use the card at all or use it and pay it off in full before the due date arrives.

Consider these alternatives if you are thinking of closing your account:

2. Consider Freezing the Card in a block of Ice/Chopping

Yes, the classic, Freeze the card in a bowl of water. Another option is to shred the card but do not close it. You can always unfreeze annually and charge something small o the card to keep it active. Some companies will auto close your card once it is completely inactive for 12 months.

3. Give the Card to a trusted Individual to hold. If you are a spender and do not trust yourself to hold on to the card, giving the card to a trusted party will guarantee that the card will be safe and will not be used recklessly.

4. Payment Agreement with Credit Card Company. If you are thinking of closing the card due to delinquency or inability to pay, your first course of action should be to contact your credit company and try to work out an arrangement with them. Many people jump fear in first and do not consider these things. Ultimately, they want to get their money owed. It works for them if you pay off the card and it is in your best interest as well to have the card paid off.

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The Writer can be reached by email at: Deana@organikcredit.com

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