Credit cards allow consumers access to a line of credit with a financial institution. When a card is open, the consumer can borrow money against this line according to terms set by the lender. This line of credit stays open and available to the card holder for as long as the financial institution allows. Sometimes, though, a card holder chooses to close the account himself. If you choose to do so, several things occur.
Closing an Account
A credit card holder can close an account at any time. When you inform the company that has issued the card that you wish to close the account, the company closes the line of credit. This may take up to several weeks to do. This means that you are no longer able to borrow money using the card. After an account is closed, you are not able to reopen it, although you may be able to open a new account with similar terms.
Credit Score
Closing a credit card account generally lowers your credit score. This is because your credit score is calculated, in part, based on the ratio of your outstanding debt to your total available credit. The higher this ratio, the lower you score. By closing an account and lowering the amount of credit available to you, you are raising this ratio and thereby harming your credit score.
Credit History
If you close the account of your oldest credit card -- meaning the currently active card that has been open for the longest period of time -- you may also lower your credit score. This is because your credit score is also calculated based on the length of your credit history. The longer your credit history, the higher your score. Eventually, this closed account may be removed from your credit report. When it is, your history is shortened. However, this can take decades.
Cards With a Balance
If you close a credit card that still has a balance on it, you are still responsible for paying off the balance. The remaining balance on a closed credit card is treated by the company just like the balance on an active account. You are still required to make the minimum monthly payment on the card, and can still be assessed late fees and punitive rates of interest for missing payments.
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