Credit scores dictate the ability of a borrower to repay a debt. The higher the score, the better the risk for the lender. Closing a credit card will lower your credit score.
Significance
Closing a credit card affects your credit score because it lowers your overall available credit. It also lowers your score due to the shortening the length of your overall account history.
Time Frame
The impact on your score happens within 60 days of the account closing. However, the longer it has been since the account closing, the lesser the effect on your credit score.
Considerations
Many borrowers close a credit card to limit the chances of identity theft or to limit temptation. These are both good reasons, and the ends may justify the means in these cases.
Misconceptions
However, with the increase in identity theft cases has come increased security for credit card users. This should also be taken into consideration when thinking about shutting down an account.
Prevention/Solution
To keep a credit card open, yet keep a low balance, simply use the card to pay one monthly bill. Pay the bill in full each month to avoid interest charges.
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