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Should you close credit cards with a zero balance?

Apr 22
Posted by Lisa

A Nerd Wallet reader asked:  Is it smart to close credit cards when balance is zero? I have recently paid off all my credit cards and was wondering if it is smart to close them. I don't want to hurt my credit score by doing so, but I don't need 3 credit cards and would like to open one more geared towards rewards (ie. gas, travel, etc) Also, does closing store cards hurt my credit score?

It IS SMART to close them if your cannot trust yourself with all of that available credit (Morocco next weekend with my new manic friend? WHY NOT!?!).

Otherwise, if you are trying to keep your credit score intact (better loan offers and insurance rates) leave them open.  Here's why:

  1. Utilization matters - your outstanding credit balances divided by your available credit is a big component of your score (a low ratio here is better).  You could unwittingly shrink your denominator and jack up your ratio if you close those cards.  Of course, you'll want to keep an eye on your accounts to make sure they stay dormant.
  2. Length of credit history - the longer your good credit history, the better.  If you had a history of making timely payments on these cards leaving them open will enhance your score.  If you close them they will eventually drop off your credit report and out of your credit score.

If you don't plan to use the cards, scan the front and back of the cards, secure the image with password protection and then cut them up.  If you're ever the victim of identity theft you'll want to have ALL of your credit card account info handy.

 

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