Can I Close My Credit Card With a Balance Remaining?

Consumers close credit card accounts for a variety of reasons, according to the Bankrate financial website. Some open new accounts with a lower interest rate or better rewards, while others simply decide they no longer need multiple accounts. Closure requires a formal written request, but there are special considerations if you still owe money on the card.

Definition

You cannot actually close a credit card account on which you still owe a balance. Don Taylor, a Bankrate columnist, explains that you close it off from new purchases, but the real closure comes only after you pay the final bill and the account no longer has activity of any kind.

Considerations

The MyFICO credit score firm website explains that closing old cards hurts your credit score because long-term accounts are helpful for your credit score. Fifteen percent of your total score comes from your credit history. Closing an account with a balance also hurts the ratio of your debt to available credit limits, especially if you still owe a lot on the account. The credit line disappears on the closed card, making the amount owed look more unfavorable when your score is calculated.

Alternative

You may wish to keep your credit card open and stop using it while you pay it off rather than closing the account. Your bank is forbidden from imposing inactivity charges by the federal Credit CARD Act, the Board of Governors of the Federal Reserve System website explains. Generate positive activity by making all your payments on time and buying inexpensive items every six months. Pay off the new purchases in full the following month to keep from boosting your debt.

Warning

Do not ignore the balance when you close a credit card account. Taylor warns that even a small owed amount can ruin your credit score because it does not disappear. The bank can add late payment fees and finance charges that boost the balance. The Credit CARD Act allows an initial late payment charge of $25, with an additional $35 for late payments within the next six billing cycles, so your old account will accrue these penalties if you do not send any money.

Time Frame

Your closed credit card account appears on your Experian, TransUnion and Equifax credit reports for many years. The exact time frame depends on the account status. Maxine Sweet of the Experian credit bureau explains that a credit card account that was in good standing at its closure appears for 10 years. An account that was closed with a balance and never paid off shows up for seven years from the final payment. The bank is likely to write off the balance within the first six months, according to MSN Money writer Liz Pulliam Weston, but collection efforts often continue and the debt may be sold to a third-party debt collector.

References

• Bankrate: Closing a Credit Card Account With a Balance
• Bankrate: Closing Your Credit Card Account
• MyFICO: What's in Your FICO Score
• Board of Governors of the Federal Reserve System: New Credit Card Rules Effective Feb. 22
• Better Business Bureau: New Credit Card Rules Limit Penalties, Rate Increases
• MSN Money: Credit Card Debt, How to Cut a Deal