Paying off credit card debt can be a terrific feeling, and for many consumers, canceling that credit card once and for all is an even better feeling. But before you completely give up on using credit cards altogether, you may want to consider keeping your credit card account active, even if you don’t use it. Before closing out your account, consider some of the benefits of keeping it open:
You may need a credit card for certain transactions
There are many situations in which you’ll need to use a credit card, or you may be better off using a credit card instead of a debit card. If you’re renting or reserving something expensive (i.e. car, hotel room, etc.) you’ll usually need to put a card number on file in case there is any damage. Some companies will require credit cards, but even if you can use a debit card, you may want to avoid this. A temporary deposit is often made in these cases, and those funds are frozen temporarily. It can take a few days before that money is available again, and if it’s just a few hundred dollars of your available credit, it may not be a big deal. But if it’s money in your bank account that’s temporarily unavailable, it can cause problems, especially if you really need that money for other expenses.
In other situations, it can generally be safer to use a credit card over a debit card. For example, if you’re shopping online or paying for a restaurant bill, you run the risk of your information being stolen. Fraudulent credit card charges can be a lot easier to dispute than unauthorized debit card transactions. Once a purchase is made using a debit card, that money withdraws from your bank account, and you may not see it again.
A new credit card can be hard to get
You may have sworn off credit cards completely, but it can be difficult to know how you might feel later on and if you’ll change your mind. If you begin opening up and applying for new accounts, it can be bad for your credit score. And if you wait too long before you apply for a credit card again, it may be difficult to qualify for one if you haven’t used any credit for a while. You may find yourself back at square one, and only qualifying for a credit card with a low limit and/or high APR. You may be able to avoid this, however, by keeping your credit card active—even if you don’t use it.
Account history is good for your credit score
The longer you’ve had a credit card open—regardless of how often you use it—the better it is for your credit score. If you’re closing out your only credit card and you’ve had it for years, or you’re closing out one of your oldest accounts, you’ll likely see a drop in your credit score. If you haven’t had that particular credit card for very long, you may not see much of a change in your score, but consider stashing it in a drawer and just forgetting about it. You’ll build that account history as time goes on, and this can help give your score a boost.