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Once a balance is paid down to zero on a credit balance is it advantageous to close the account formally or will the zero balance be sufficient to show that the item has been closed?
Wiki User
∙ 15y ago
If the card is paid off and you aren't using the card, that doesn't mean you should close the account; in fact, doing so can hurt your credit score (i.e., the score that tells companies whether you are a good candidate to loan money to). These companies, when they look at your credit report, want to see a few things:
1) Do have a history of credit being extended to you? They want to see a long history, which is why you should NEVER close the account for the credit card you've had the longest, even if you never plan to use it again: keeping the account open keeps it on your credit history, showing that you've have credit for a while.
2) Do you have multiple types of credit (credit cards, mortgage, car loan, cell phone, student loan, etc.)? They like to see a mix
3) How much of your credit do you use? They like to see that you use no more than around 30% of the credit available to you. For example, let's say you have two credit cards--one with a $10000 limit, one with a $20000 limit--and so, you have $30000 of available credit. You owe $5000 on the card with a $10000 limit and $0 on the $20000 card. That means you're using about 17% of your available credit ($5000 of $30000). That's fine. But let's say you close your $20000 card. Now, all of a sudden, you're using $5000 of $10000 in available credit--50%. That looks horrible--like you are living beyond your means, getting by on credit, even though you owe THE EXACT SAME AMOUNT OF MONEY as you did when you had $30000 of credit. But, by closing the account, you jacked up your debt ratio past 30%, making you look like a poor manager of credit. People will be less likely to offer you credit now, and they'll offer you worse interest rates when they do.
In other words, paying off the card is sufficient. Just make sure you don't run up additional credit card debt that you can't pay off in full every month, or all your hard work will have been for nothing.
Wiki User
∙ 15y ago
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