Credit Card: Getting out of credit card debt is no small feat. Whether you’ve worked with a credit counselor or used a popular pay-off system like the avalanche method, you know the discipline it takes. You also know how tempting it can be to have open lines of credit just waiting to be used. But you may have heard that it’s better for your credit score if you keep the card open. So is it worth the risk of getting back into debt? The answer varies from person to person and depends on these critical factors:
Can you stay disciplined with your spending habits?
Having an open credit line does no good if it’s just a temptation to spend. While it’s true your credit score will decrease due to the change in your credit utilization ratio (the amount of credit used divided by the amount of total credit), it would decrease if you go back into debt, too. If you feel like the risk is too great, cancel the card and reward yourself for making the better choice for your situation.
Does your card incur any fees to keep it open?
If your card has an annual fee or an inactivity fee, it might be best to get rid of it. Many credit card issuers can downgrade you to a different card with lesser or no fees without having to do a hard pull on your credit report. If that’s not an option, then you’re just paying money for the ability to have credit that won’t be used. In that situation, it’s probably best to cancel the card and either apply for a $0 fee card or simply move on.
How long have you had the credit card?
The age of your credit has some significance in determining your credit score, so it’s essential to consider how closing your card will affect the total amount of time you’ve had open credit lines. If it’s a relatively new card that was opened within the past two years and you’ve had other cards open longer, closing it will have little effect on your score. If, however, you’re closing your oldest or only credit card, you’ll see your score decrease. Whether or not that’s an issue depends on what your plans are for the future. Getting a mortgage or car loan may be more complicated if you close the card than if you have a long history of good habits with available credit.
The bottom line
In summary, you should keep your credit card open, but only if you’re able to stay out of debt. If you start to use the card too much and find yourself slipping back into old habits, try to change how you pay for things by paying for purchases in cash. While it’s OK to close any card you won’t use, be aware that you could see a decline in your credit score, and you’ll need to decide how much that will impact your future goals.
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