Does Canceling a Credit Card With Residual Interest Affect a Credit Score?

To avoid residual interest, call and ask what you will owe.

To avoid residual interest, call and ask what you will owe.

Canceling any credit card can affect your credit score. However, when your card carries residual interest, canceling it carries a more severe risk. If you don't pay that final charge, you could end up with late payments on your credit report. Late payments can be extremely damaging to your score, especially if it's already high.

How it Works

When you get a credit card bill dated December 1 that says you owe $500, it's correct. However, if you mail your check in on December 2, and your credit card issuer doesn't apply it until December 5, you won't owe $500 any more. Your $500 balance will keep accruing interest, and you'll end up owing an extra dollar or so. That extra dollar is the residual interest.

Credit Score Hits

Your utilization -- how much of your credit you use -- makes up 30 percent of your credit score. Your utilization improves when you pay a card down to zero, but drops when you cancel since it reduces your total credit. This makes your existing balances look bigger since there's less unused credit in your account.

Late Payments

While increasing utilization can make a typical FICO score go down 10 to 45 points, a late payment can lift it by 60 to 110 points. The problem with residual interest is you may not be aware it's being charged until you miss the payment. Keep checking statements from your credit card even after you've paid it off to spot any residual interest.

Managing the Balance

If you're no longer using the card, you can call your credit card company and ask what you'll owe on a given date. The amount they'll give you will include the residual interest. Another easy way to solve the problem is to add a few extra dollars to your last payment. The worst thing that could happen is you'll pay them too much and get a check back.


About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

Photo Credits

  • Images