As you may already be aware, there are plenty of reasons why your credit score may take an unwanted tumble. It can also turn out that you are struggling with bad credit, and your credit score has continued to decline. This may then lead you to think about a variety methods of changing this situation – maybe even beginning with re-examining your various credit card accounts.
One perhaps course of action may be to decide whether or not to close a loan or a credit card account or to keep it open, even though you won’t be using it. When it comes down to it – there may actually be more than one option that can be the better choice. Therefore, taking the time to look at the pros and cons of this financial decision is well-worth the effort.
Some Reasons for Keeping the Account OPEN:
If you have an account and are not using it – perhaps you want to take steps to close it. Here are some reasons why you may want to think again.
For the most part, open credit cards accounts look better on credit reports than closed ones do to lenders. If you close an account it does not continue to build a credit history – and since having a longer credit history is often better than a short one – or not having a credit history at all – keeping an account open may be the better option.
As it turns out, closing an account can actually be in some cases as bad for your credit score as missing payments. Having a credit card or loan account marked ‘closed’ versus ‘open’ also may indicate that you have run into difficulty and the creditor is likely the one that closed the account for you and not the other way around. Again, this action will not be looked on as well by lenders when you are trying to borrow more credit.
If you have good credit comments, yet also some bad ones mixed in – you may also find it necessary to close that account. Although you should keep in mind that once an account is closed all of that good credit history goes away with it. So therefore, keeping it open even if you aren’t using it very much – perhaps is a better choice.
As already mentioned, having a longer credit history is often an important aspect of obtaining a large loan. In the event, you have closed your account and then want to apply for a mortgage, for example – this could then lead to difficult in being approved. Thinking ahead about what upcoming loans, such as a home loan may be in your future may be a good reason for deterring you from closing out a current loan or line of credit.
Some Reasons for CLOSING the Account, if you aren’t using it.
If you have paid off most or all of your credit debt in this account and you choose to leave it open – this could make you more susceptible to identify theft. As long as an account is open and available for use – it could be used by someone else other than yourself – yet having it closed will avoid this situation all together.
Additionally, if you choose to keep this card open, this may also be a negative course of action, as you may be tempted to spend more of your credit again and rack up more debt. Again, by closing it – you won’t be able to start using it again at all. If you worry you may have a tendency to spend too much on this card again, especially after you have worked so hard to pay off your debts – then closing it may be in your best interests in this type of situation. In the end, you can however ask to have an account reopened if you have changed your mind, although it might result in a new account being opened and not resolve the actually situation.
All in all, accounts especially credit cards and other loans that show up as ‘closed’ on your credit report may outweigh the negative ramifications that having missed payments can have on your credit score. While this too can lower your credit score – ‘closed’ accounts can derail credit even faster.
So with both positive and negative reasons for keeping an account open or closing it – what is the best decision for you??
To answer this question – I would have to say that ‘timing is everything.’ This of course means that you will want to look at making a personal decision that will reflect what is going on in your life at this time. For example, will you be needing to apply for a larger loan – a mortgage or a car loan, perhaps? If this is the case, then choosing not to cancel the loan or the credit card account may be best for you.
So with both positive and negative reasons for keeping an account open or closing it – which do you think is the best decision for you??