Unintended Consequences of Closing a Credit Card
Every month, you receive a statement from your credit card company that reminds you that far into the future, you will still be making payments for purchases that you may have made long ago or may have long since come to regret. It can be a disheartening experience, and sometimes you may not have the funds on hand to make the minimum payment, leading to the imposition of fees, penalties, and the attachment of a higher interest rate to the account.
In light of all this, it is no wonder that when the balance nears zero it can boost your spirits, and when you have paid a credit card balance in full it can be very tempting to close the account in a symbolic gesture of victory. That could be a financial mistake, however, due to the way that credit scores are calculated.
If you find that you are consistently unable to keep up with the demands of your creditors and other service providers, then it might be appropriate to consider a bankruptcy filing. To discover whether this may be the best choice for your situation, contact the skilled and experienced Birmingham bankruptcy lawyers of Greenway Law, L.L.C. at (205) 324-4000.
How Closing Accounts Can Hurt
Though it may seem somewhat counterintuitive, closing a credit card account can be damaging to your credit for several different reasons, including:
The length of account histories is considered in your credit score, so closing an old account can effectively shorten the record upon which credit decisions are based.
Maintaining an active account with a low balance and making regular on-time payments can significantly boost your credit score.
Closing an account lowers the amount of overall credit available to you and increases the ratio of balance to limit, dragging down your credit score.
To clarify the issue, remember that a key component of your credit score is determining whether you are able to handle credit responsibly. When you close an account, you lose a means of proving such responsibility.
The financial difficulties of the past and present do not have to haunt you in the future. Contact the Birmingham bankruptcy lawyers of Greenway Law, L.L.C. at (205) 324-4000.