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Closing a credit card with zero balance

Thinking of closing a credit card with zero balance? Before cutting that card, you should consider all of the possible effects, such as how it can impact your credit score and your chances of getting approved for new lines of credit. It's usually better not to cancel cards, but there are also times when it makes perfect sense.

Why you should close your credit card

You want to steer clear of high annual fees

If you're not using a credit card that charges a high annual fee, your best option could be to cancel the card. Also, if the card's perks and rewards outweigh the annual fee, you may benefit more from keeping it open.

You've gone through a divorce or separation

This only applies to joint accounts. If you share a joint credit card with a significant other and break up, you may still be liable for past and future unpaid charges on the card. It's best to close joint accounts if you and your partner are no longer together.

You want to avoid the temptation to spend

There are plenty of ways to limit your spending and protect your credit score, but if overspending becomes a problem, it might be best to close your credit card account.

You worry about fraud

If you're concerned about fraudulent charges, you may want to cancel the card. However, many issuers offer zero liability protection and 24/7 monitoring to help protect you against fraud.

Why you shouldn't close your credit card

Canceling a credit card — even one with zero balance — can end up hurting your credit score in multiple ways. A temporary dip in score can also lessen your chances of getting approved for new credit.

Your credit utilization ratio goes up

Part of your credit score is determined by your credit utilization ratio, or how much of all of your total available lines of credit you're currently using. By closing a credit card account with zero balance, you're removing all of that card's available balance from the ratio, in turn, increasing your utilization percentage. The higher your balance-to-limit ratio, the more it can hurt your credit.

You're removing old credit

Your credit score also depends on the average age of your credit card accounts. A long and positive credit history helps build your score. So, depending on your history and the age of your other lines of credit, canceling an old card may hurt your credit. However, a closed card will stay on your credit report for up to 10 years, so you'll still benefit from your closed account if you have a good history of on-time payments.

You plan to apply for new credit

If you want to close one credit card and open a new card with better terms or rewards, your credit score probably won't suffer as much. It may be best to wait until after you've been approved for the new line of credit before you close your old account. Lenders like to see stability, in addition to strong credit.

How to close a credit card with zero balance

Many think canceling a credit card involves scissors and a garbage can, but there's much more to the process. If you've decided that closing your credit card is the right move, you want to do it properly.

1. Make sure the balance is zero

Before canceling your card, it's important to ensure that the balance is at zero. If you're closing the account because you don't use it, this shouldn't be a problem. If you've used the card recently, either pay off the full balance or look for a balance transfer card with better terms.

2. Redeem your rewards

Review the redemption rules for your card so you can redeem all of the rewards and perks you've earned before closing the account.

3. Contact your card issuer

First, call to confirm that your account balance is zero. Let your issuer know that you want to cancel the card. To be safe, you can also mail a certified letter stating that you'd like to close your account and requesting a closed account status notification in return.

4. Check your credit reports

A month or so after cancellation, check your three credit reports — through Experian®, Equifax® and TransUnion® — to make sure that they reflect your account closure. If you see any inaccuracies, call the appropriate credit bureau to dispute.

5. Destroy your card

Now that you've confirmed your account is closed and the balance was zero, you can dispose of your credit card. Proper disposal helps protect you from identity theft, so be sure to:

  • Shred or cut up your credit card and all related documents you no longer need
  • Destroy chips and magnetic stripes
  • Bag the pieces in separate garbage bags or cans

You can also incinerate or burn all related documentation for extra security (safely, of course!)

Should you close your credit card?

Once you've considered why you want to cancel your card and the potential impact on your credit score, you'll know whether you actually need to close the account.

Sometimes, it's better to just not use the card — so you can maintain credit stability, keep old accounts open and keep your credit utilization ratio as low as possible. Plus, an extra line of credit with no balance can prove useful in emergencies.

Ultimately, the decision is up to you.

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