Should You Close Charge Card Accounts with a Zero Balance?

Charge card accounts with a zero balance may still cost you a minimum monthly maintenance fee to maintain. As such, you may be tempted to close these accounts if you are no longer using them. This may be advisable, but there are also benefits to keeping the card open despite the zero balance.

Closing too many Cards

Closing one credit card with a zero balance will not have a large affect on your credit. However, if you happen to close multiple cards at once or even within a certain time frame, you will see your credit score drop. Often, people close credit cards because they cannot manage the credit, do not have money to pay minimum fees or are going through a difficult financing period. Any of these items is enough to scare off a lender. Because these are red flags for lenders, the credit bureaus will alert lenders to the possibility. The bureaus will drop your score even if no lender made a negative report about you. 

Maintaining Low Balance Ratios

You should aim to have as low a balance as possible on your existing credit lines. When you close a card, your total credit limits go down. This can create a less favorable ratio of debt to credit. For example, image you have one credit card with a $5,000 limit and a $2,000 balance. Your second credit card has a $3,000 limit and a $0 balance. Initially, your credit to debt ratio will be $8,000 to $2,000, or 25%. While this is not a great ratio, it is low enough to not significantly hinder your credit score. If you close the $3,000 card, your new ratio will be $5,000 to $3,000, or 60%. This is a highly unfavorable balance. Your credit score will go down as a result. 

Having Enough Credit

Your lenders will also evaluate how much credit you have to your name when considering whether you are creditworthy. Borrowers with a lot of credit have been deemed creditworthy by a number of other lenders which is a good sign to future lenders. Those borrowers who have only one or two loans appear less solid to a future borrower. While having too many debts can be a red flag to a lender, having too few is a worse problem. In fact, it is better to start using the $0 balance card if it is one of the few you have available to keep building your credit score.

Having an Emergency Card

You will find that charge cards present a great option for emergency financing. If you have a medical bill you cannot immediately afford or another unforeseen payment, your charge card is an immediate source of liquidity so you do not have to go seeking a new loan. Having a card with a $0 balance on hand means you can spend up to the entire limit on the card if necessary in an emergency. Though there will be few emergencies of that magnitude, it is added safety to have the option of making the payment if necessary.

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