If you are like most consumers, every so often you like to take a look at your finances and all of your accounts to get a bird’s eye view of where you are with your debt and your savings.
This could be after a raise or when you are preparing to file your taxes or it could be just a random time but it is a good idea.
Knowing where you stand is important in managing your money and making good choices.
So a quick look at a copy of your credit report could raise some questions. You see the long list of credit cards and accounts that you have open and you begin to think about closing some that you are not using.
But that can lead to you wondering does closing a credit card hurt my credit? The answer to this is important and you can begin to understand it more once you know more about how your credit score is derived.
Average Age of Accounts
A part of your credit score is determined by the average length of time that you have had all of your accounts. It can be seen as a way to measure stability and that plays into creditworthiness. If you are opening and closing accounts every few months then that is a red flag and does not help your credit score at all. In total, the average age of your accounts translates to about 15% of your score. This might not sound like a huge factor but it is a really easy boost to your score just to have a card or account sitting open and it costs you nothing.
There is also another factor that can come into play with your older credit cards. Credit utilization is the term for how much of your available credit you are using. It can be found by adding up all of the credit limits on all of your credit cards. Next you want to add up all of the balances on your credit cards. Next divide the amount of the balances by your total credit limit. This will tell you the percentage of your credit that you are using. The general rule is that you only want to be using 30% of your available credit. A higher percentage does not always hurt your credit a lot but it will not help it either. You might be right at about 25% to 30% on your utilization at the present time but if you close an older credit card account then you are changing the amount of your available credit and hurting your percentage.
Improving Your Utilization
If you are paying a fee to keep an old credit card open then it does make sense to want to close the account. But to avoid increasing your utilization percentage you need to make a few changes. The first option is the easiest by far. You can contact the credit card company and request that they eliminate the fee on your card. Providing them with a list of reasons why they should help you out is always a good idea. Start with stating the length of time that you have been a loyal customer. Also indicate your good payment history, but only if that is the case as they can see your payment history. If you have had no late payments in ten years then that is worth reminding them of. Finally, remind them that there are many other credit card companies that you can choose from, and if they want to keep your business they need to remove the fees and possibly reduce your interest rate. If they remove the fees then that is perfect and you really don’t need to do any more. And if you get a drop in your interest rate that is just an added bonus. If they decline and don’t offer you anything then thank the customer service person for their time and hang up. Next stop is your computer to find a good credit card offer online. Look for something with a no interest introductory offer and no fees. When you apply request a limit at the same amount as the card that you are closing or a little bit more to help you out for the trouble of getting a new card. When you are approved and have your new card in hand and the account activated then close the old card.
When you are reviewing all of your credit accounts it can never hurt to call the lenders to see if you can get a better interest rate. In some cases you can get a reduced or zero rate for a few months and that can be a nice way to pay off your debt more quickly. You might also find that the company will not offer you the lower interest rate that you asked for but they I might offer something else. Sometimes you can get a better rate on a rewards program or they might offer to increase your credit limit. As long as they are giving you these perks for free then you might as well take them.
If you have found that you have gotten yourself in debt using your credit cards then you are very smart to be sorting out your finances. Deciding to correct your poor financial money management is the only way that you can correct your credit score and your level of debt. Creating a budget and sticking to it is the best way to begin to pay off your debt and reduce your stress. You have researched does closing a credit card hurt my credit and gained valuable information. Now focus on learning new and creative ways to reduce your debt and achieve stress free financial freedom. Correct the problem before it grows beyond control and you are forced to research bankruptcy information.