Advantages & Disadvantages of Closing a Credit Card Account

At its core, closing a credit card account may help reduce temptation. Too often, people use a credit card to pay for extra expenditures such as clothes or a trip to a restaurant. While doing this every so often sounds fine in theory, many cards have a high interest rate that makes these tiny treats add up. You can't use a card you shut down, so you avoid those extra costs and any annual fees on a balance.

Even though you're no longer using your credit card, it doesn’t mean someone else can’t. While the chances are slim that an identity theft can hijack the card, having that open account you're not checking on a regular basis is an unnecessary risk.

One of the big issues with keeping your credit card open is it keeps a high amount of revolving debt on your credit report. Revolving debt is the amount of credit card debt you owe in relation to your balance. If you keep your card and use it, it may make it harder for you and your partner to qualify for a loan. Cutting back on that revolving debt before applying for any type of loan will increase your chances of being accepted.

Closing a card after you've paid it off may help your credit in the long run, but you'll take a hit on your FICO score in the short term. Your credit history makes up for 35 percent of your FICO number. Losing a card in good standing may cause a small hit on your FICO score. The hit may not be significant if you have other open credit card accounts in good standing, but having a balance and a strong payment history is always helpful to your credit.

If you have other cards with high balances, wait until you pay them down before you start closing unused cards. Those cards a positive on your credit report since they show you can handle credit. They essentially balance out the cards with high balances that indicate you may have a problem managing credit.