Closing a Credit Card is Not a Bright Idea

Credit card holders are facing serious problems with their financial status today. Many are struggling with their accounts, and they are starting to formulate strategies in order to lessen the loans they are applying from credit companies. One of these strategies is cutting off their credit card account for good, but this is not a very good solution.

One of the biggest mistakes that credit card owners make is paying off the whole balance and afterwards deactivates the account. Though it might seem like a practically smart idea, it is not the correct solution to a customer’s financial problem. Possible drawbacks may occur on the customer’s credit standing when a customer closes his credit account.

The credit rating of a customer is based upon the average rate of time he has owned the account. So when he closes an account he had possessed for several years, there will be a negative effect on the rating he has.

An individual’s credit score is based on the total sum of money he has borrowed minus the amount of his credit limit. Closing a card will decrease credit limit and will increase their debt ratio and decrease their credit score.

This may result to a positive outcome for the account of clients with yearly fees, for some maintaining a low credit score may allow the owner to keep the credit account active, but it is risky and it is not advisable for borrowers to do this. But for those that do not pay in a yearly basis, the client must try to keep his credit card account open for as long as he can even if he does not use to purchase. It does not only prevent him from getting a low credit score, he can also use it in case he is faced with a monetary crisis.

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