In order to erase your credit card debt, you completed a balance transfer from your current credit card to a new card with a 0% introductory offer. Once your new card issuer confirms your balance has been transferred, your first instinct is to close your old card. However, you might want to reconsider – closing the account is not always a very good idea.
In most circumstances, financial experts recommend keeping your old credit card open after the balance transfer. Longevity is an important factor in calculating your credit score.
Of course, just because it’s advisable to keep the card open, it doesn’t mean you should. You need to consider your options and understand the consequences of keeping the card open or closing it.
To help you decide, this article lays out the reasons for closing the old credit card or keeping the card open.
Reasons to Close the Old Credit Card Account
While closing an account could lower your credit score, sometimes closing your old credit card after your balance is transferred is the best option. Reasons for closing the card include:
Annual fee – If the card charges an annual fee, you will want to close the card.
Prevent identity theft – The more credit cards you have, the greater the risk the card can be stolen or compromised, which can lead to identity theft. Cards not used very much are the most at risk.
Too many open credit cards - Credit cards are considered revolving credit and too much in relation to other types of credit can hurt your score. lower your score more than keeping the card open. Also, some lenders see having too many open credit cards as a negative.
Unable to stop spending – You get a balance transfer card to help you reduce your credit card debt. If having your old credit card open is too much of a temptation to spend, close the card.
If you do decide to close the card, make sure you receive written confirmation from the card issuer about the closure.
Reasons to Keep the Credit Card Open
Keeping your old credit card open once the balance is transferred can have a positive impact on your credit score. However, if you do plan to keep the card open, you should put it away or cut it up so you won’t be tempted to use it. Also, make sure you keep making payments until you have confirmation, the balance transfer is complete.
Here are some reasons to keep your old card open:
Lower average age of accounts – Credit history counts for 15% of your credit score. A longer credit history has a positive impact on your score. If the credit card you cancel is the oldest (or one of the oldest) card you have, the “average age” of your accounts will go down and your credit history will shorten, lowering your credit score. While your average age of accounts isn’t typically the most important factor used to calculate your scores, it is a factor.
Credit Utilization – Your credit utilization rate – the amount of debt you have compared to the total of all your credit lines – makes up 35% of your credit score. Each time you close a credit card, especially one with a 0 balance, you lower the amount of available credit, which drives your credit usage rate up and your credit score down.
Applying for other credit products – Since closing an account can lower your credit score. if you are applying for loans or other credit products, you should keep the card open until you obtain the product.
In case of emergency – Emergencies such as accidents or illness happen and it’s always a good idea to have a credit card you can use in those situations. If you plan to keep card open for emergencies, just make sure it’s not one with a
Terms could improve – Once you finish paying off your balance on your balance transfer card, your old card may have better terms or have better features (rewards, cash back, low APR). Keeping the old card open gives you the option to use it again when you pay off the debt.
As you can see, there are good and bad reasons to close your old credit card account after your balance is transferred to the new card. When making your decision, you should also take the following considerations under advisement.
- Closing an account may initially lower your credit score because you will be decreasing your average account age and increasing your credit utilization; however, paying down your debt and using credit responsibly in the future can mitigate the impact.
- Do not base your decision to close a card or keep it open solely on the impact to your credit score. Consider how the action will affect your overall financial situation.
- Even if you do close the account, it will remain on your credit report for a specified period of time. Closed accounts with no late payment history will stay on your credit report for 10 years from the closure date.
- If you have very good credit, closing a newer credit card will not have the same impact as canceling the first credit card you ever owned.