If you have a credit card or catalogue account with a zero balance, should you close it?
You may be worried if this would help or harm your credit score. But that isn’t the only thing to consider. And what impact will it have on a mortgage application – cr4edit scores aren’t the only that matters to a mortgage lender.
This decision is important to get right if you are trying to clear your debts as fast as possible.
Here are the main arguments for and against closing the credit card:
Contents
Four reasons to close that card
1. You won’t be tempted to use it
For many people this will be the most important point of all.
Getting a consolidation loan and not closing down all the credit cards you have paid off can end up in a disaster in a year or two if you go on to run up the card balances. You then have high credit card bills and still have most of the consolidation loan to pay off.
Unless you have a great track record with money in the past, it’s probably best to remove the possible temptation.
2. Lenders don’t like too much available credit
This is a matter of balance. If you have been clearing debt as fast as possible, perhaps so you can get a mortgage, you can show a future lender you aren’t going to run up huge debts again by cancelling most of the cleared cards.
It’s a good idea to keep one for an emergency. See below for how to decide which one!
But if you were thinking it would be a good idea to keep them all open so you can then use them for furniture, carpets, new bathroom when you have bought your house… that is exactly why a mortgage lender may be worried about you having a large about of credit available!
3. Fewer accounts keep your finances simple
There is always some risk of fraud with open accounts. If you close the account, there is no chance of anyone else getting hold of your letters or emails with a credit card statement in it. Or of getting hold of the replacement card you will be sent when the current card comes up to the expiry date.
Of course you can stop fraud by checking your accounts regularly, but you might like to take the easy route and simply prevent the problem.
And with an open account, you will continue to get emails or letters if the lender changes the way they calculate the minimum payment or increases the interest rate. If you are like me, you don’t want to get more stuff coming through that you will just ignore.
4. 0% balance transfer offers
When you phone up to cancel the card you can say:
I would like to close this account unless you can offer me a 0% balance transfer offer.
This doesn’t work that often but if you have other credit cards that you are paying interest on, or where the current 0% period is going to be ending soon, it’s worth a try as it could really speed up your debt repayments.
Also sometimes good 0% offers aren’t available to existing account holders. So by closing the account now, you may be able to get a balance transfer offer from this lender in six months or a year. This one is hard to assess because a few lenders may offer new balance transfers to existing account holders.
And four reasons to keep the card open!
1. So it’s there for an emergency
Everyone needs access to some emergency money and keeping an unused credit card is one option.
If you have another credit card with unused credit, or some savings, this reason is probably irrelevant.
2. Less need for new credit applications
If you know you are likely to need credit next year, you may decide to keep this card open, so you won’t have to make another application where you might be refused.
But credit cards are an expensive way of borrowing… You might do better to close this account now and apply for a low-cost loan or a 0% on purchases card later.
3. High limits and old accounts are good for your credit score
If your card has a limit of over £5,000, this does give your credit score a small boost – see How much will my credit score change if… ? But it’s only 20 points so it’s pretty minor.
And very small limits don’t help your credit score at all!
Lenders do like to see evidence of stability, so it’s better to have accounts with a higher average age rather than accounts which have just been opened. Again this is a pretty small effect, having a credit card for more than five years gives your score a 20 point boost with Experian.
4. Unused credit shows you aren’t struggling
This is a hard one to evaluate.
If you have maxed out several credit cards and have a high level of borrowing for you income, lenders may think you are struggling and not want to lend you more.
But if you have just cleared a credit card and closed it, a creditor will be able to see from the settled account and your credit history that the “trend” is going in the right direction. And if you have other credit cards which aren’t maxed out, there is available credit there.
What matters most for you?
So there are four arguments for and four against closing…
And to make it even harder to decide, some of them appear contradictory: how can lenders be worried if you have too much unused credit AND be worried if you have too little available credit because it means you might be in difficulty!
Another complicating factor is that each lender has their way of making a decision, they don’t use the headline credit score number that Experian, Equifax, or TransUnion calculate.
The lender’s decision will depend not just on your credit score but also on the rest of your application, for example your income and expenses, and their lending policy. Obviously if you next apply for a £35 a month mobile contract the lender isn’t going to be as fussy as if you want a £180,000 mortgage!
One thing that is becoming clear in 2021 is that stopping using a credit card and using Buy Now Pay Later facilities such as Klarna and LayBuy instead is a bad move for your mortgage prospects.
It’s not possible to give a simple Yes or No to cancelling your credit card with a zero balance. But some of those eight reasons will matter more than others for your situation.
On balance I think most people probably ought to close a cleared account (unless it is their only available credit) because of these two factors:
- removing the temptation to spend on the card again and
- closing the card may increase your chance of getting a 0% balance transfer offer.
Which card to keep and which to close?
If you are clearing a lot of debt and you will have several cards to make this decision about, it’s probably a good idea to close all apart from one.
These are the things to think about when deciding which card to keep:
- keep a card with a low interest rate, so it’s less expensive if you need to use it in future;
- keep a card that you have had for a long while, because older accounts look good and help your credit score;
- keep an account with a credit limit of over £5,000 if you have one, as this also helps your credit score.
Updated in August 2021
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Kevin says
This is a tough one, but I think it’s best to cut the cards and slowly close accounts, which is what I have been slowly working at because I have heard and seen the negative effect if you close them too fast, just lowering the limit hurts your credit score and when you have a good one like I do I don’t want to completely clobber it, but cutting the cards (shredding-so you can’t piece them together for online shopping) is the best way to go.
Sara (Debt Camel) says
HI Kevin, you are in the USA. The credit scoring rules may be a bit different there. In the UK you definitely don’t want to have too much unused credit. It won’t matter for some new credit applications, but there are two important situations where it is VITAL not to have too much unused credit:
1) for a mortgage you can get turned down because you have a lot of unused credit – the mortgage lender doesn’t want you to go and spend 15k on doing up the new house and then end up in money trouble!
2) for 0% balance transfer deals. You will be rejected if you appear to have too much credit already available. If you want one of these deals (and there are lots of great ones around in 2016, see https://debtcamel.co.uk/balance-transfer-deals/) then phone up and say you want to close the card unless they can offer you a deal!
Closing a card which you have had any problems on is a good move. Closing a card you have repaid in full on time won’t “clobber” your credit score – there may be a temporary one month dip but providing you are still paying off your other debts on time it will be back to normal soon.
Rebecca says
Great post! Rebecca
Rachel says
Hi Sara wasn’t sure where to post this, after almost at the end of the payday loan nightmare I am sorting out my other debts/credit file. I had an account with shout credit card which I think was raphaels bank? I stopped paying it had a few letters re the balance but nothing for about a year? So my question is do I leave it? It’s not on my credit file I owed about £500 or should I contact them to arrange payment don’t want it to come back and ruin my credit file, if I phoned now could they still put defaults on my account?
Sara (Debt Camel) says
when did you default on it? when was the credit card first taken out? have you checked your credit records with all three CRAs, see https://debtcamel.co.uk/best-way-to-check-credit-score/
Rachel says
Thanks Sara I think it was about 1/2 years ago when I stopped paying I paid on time but it was similar to a payday loan but on a card. Can’t remember when it was taken out didn’t have it for that long. I’ll check the other credit reports. Experien has no record and I don’t think check my file did either? On the website it says they are no longer accepting new applicants
Sam McBride says
Hello Sara. I recently closed a credit card account that I had for years as I never really used it. Out of interest, when you close a credit card account, do they do credit / background checks on you again? I’m applying for a mortgage soon and didn’t want additional checks on my reports. Thanks in advance.
Sara (Debt Camel) says
No they don’t.
Adrian Savage says
Should the very final bullet on this page, “keep an account with a balance of over £5,000 if you have one, as this also helps your credit score” actually say “credit limit of over £5,000” rather than “balance of over £5,000”?
Sara (Debt Camel) says
YES! thanks – will correct!
Stuart says
not necessarily a great idea to just get rid of your credit cards, maintaining a credit profile isnt a bad thing
just use it, pay it back the same day. I only take my c/card and a cash card out with me now. i use c/card for everything where possible and do a transfer on my phone moments later
over time my credit rating is improving. i didnt use a management company though I just loaded up excel worked out a proper budget and stuck to it for nearly 2 years now, august this year will be my final loan repayment and completely out of debt. but im still keeping my cards
G says
Hello I wonder if you can help.
After being in debt for 8 years and constantly balance transfering, I have finally just paid off my last credit card. Now I have 7 balance transfer cards with zero balance as follows:
A) 3300 limits 132 month old
B) 3750 limit 78 months old
C) 7300 limit 54 months old
D) 6100 limit 24 months old
E) 4500 limit 14 months old
F) 5300 limit 10 months old (rewards card I want to keep)
G) 6000 limit 2 months old
I was thinking of closing cards e) and g) as it will take my length of average ownership up. Can I cancel them together or would you advise to cancel them in stages?
I was also thinking about closing card d) but in your article it says keep cards above £5000. Should I still close it as I have other cards (c&f) which have a limit above £5000 or is it a case of the more cards the better?
Finally in the next couple of years I hope to get a mortgage. The article says try to not have too much allowance avalaible at this point so should it be that by that time I should aim to only have 1 card with long ownership and high allownce. Eg card c?
Sorry for the multiple questions but this is a minefield and I don’t wish to hurt my chances of getting on the property ladder by closing the wrong cards.
Thankyou
Sara (Debt Camel) says
Well done for clearing that lot!
Can you say what the interest rates on each of the cards are?
Graham Dawson says
Thank you.
A) 19.16
B) 17.9
C) 17.47
D) 18.52
E) 19.3
F) 20.84
G) unknown
Sara (Debt Camel) says
ok so thay are all much of a muchness. If one was 15 and one was 25, then it would be clear which of those two to keep. G should probably go anyway as it is so recent.
I am assuming you don’t have any late payments on any of the cards.
This isn’t a science. My personal inclination would be to keep just A and C, both large and old. Not sure why you would need more than 10k of credit going forwards. Your score will take a temporary hit closing any of them but I would expect it to soon recover.
Graham Dawson says
Ah thankyou so much for your time and direction. I’ll get onto it.
Yes all payments made on time.
Have a great day.
Pierre cardin says
I had one late payment due to a bank account changeover on one card (barclays).
since then they NEVER give me any offers so it sits unused with a £5500 available balance.
Should I close it if its no use to me? Two other cards also no longer give me a balance transfer since that day, yet ive been accepted for anouther 0% card with £5k availale just the other day
I have loads of other cards with credit limits of £2500 – £7500 and i feel i have too much free credit available to me on cards i will never use
is THAT the time ti close them? OR should i get rid of the barclays because it had a yellow mark on it?
I feel like getting rid of those that dont serve me
Sara (Debt Camel) says
It is harder to get good balance transfer offers these days.
But having such a lot of unused credit won’t be helping. You are more likely to get an offer from one of those lenders in future years if you close the account.
I suggest closing the Barccard and the two other accounts (if they are unused) would be a good first step. But it sounds as though you should close a few more as well!
Jack says
Hi Sara,
I’m hoping to get a mortgage with my partner next year and desperately trying to raise my credit score/lending appeal.
I currently have 2 credit cards – a credit-builder with a £200 limit which is paid off in full whenever it is used, and another with a £5,200 balance… I maxed this card out but have been paying it off in monthly payments of £350. This month I have paid the final £3,600 balance in full. I have missed two payments on the larger card in the last 18 months.
I’m not planning on ever using the larger limit card again. Is it best to close the account, or leave it open? It’s been open since 2017 so has a history (albeit not a great one). Equally I don’t need the smaller limit card but was just using it to try and boost my credit score – do I keep it or close it if trying to raise my score/come across well to mortgage lenders?
My final question… I also have a £250 overdraft which I use every month, I can pay it off and get rid of it this month if needed. Would this be a good idea if preparing for a mortgage?
Sara (Debt Camel) says
Missing 2 payments in the last 18 months is very bad news for getting a mortgage next year. What % deposit will you have?
Jack says
By the time we apply for the mortgage, the 1st missed payment will be 2 years old, and the 2nd missed payment will be 13 months old. We’ll have a 5% deposit (£20,000) and are planning to use HTB, so applying for a 75% mortgage.
I now have no debt, regular monthly payments (car finance, phone bills, insurance) and am saving a minimum of £750 a month.
Sara (Debt Camel) says
So you need to talk to HTB broker. It’s a specialist market.
Jack says
In general with credit scores, would closing the unused credit card accounts help my score?
Sara (Debt Camel) says
Probably not, but it may make some lenders more prepared to lend… lenders do not use the credit scores you see. They have their own metrics and they may prefer not to lend to someone with a lot of unused credit.
This is a much more complicated decision as the article above explains. Your credit score is mostly irrelevant.
Denise says
Hi, I opened a credit card with Barclays in September 2017 with a limit of £2500. I maxed it out quickly (and had other debts, payday loans and bank loans at the time which have all been settled in Jan 2020) but I have just paid my credit card off this month so it is 0 balance. I have been reducing my limit over this year so the limit on it is £200. I am wanting to improve my credit score (it is currently poor on the border of being “good”) – I have no other credit cards/loans/overdrafts, just my car insurance which I pay monthly and ends in Feb 2021 so there’s only £250 left to pay back, with the intention of paying my next insurance in full rather than installments. I will be looking at applying for a mortgage next year or 2022 at the latest. Do you think it would be beneficial to close my credit card now it’s paid off or keep it open and make small purchases and pay them off straight away?
Sara (Debt Camel) says
Keep it open, use it for 1 purchase a month for less then £50 and set the card to be repaid in full by direct debit at the end of the month.
Why? There is no benefit for using it to make lots of small purchases. Keep the amount to under £50 and you will always have a low credit utilisation. Don’t repay the amount immediately because the amount may never register on your credit report then as that is a snap shot. You don’t pay any interest if the balance is repaid in full by direct debit.
At the moment you can’t get a mortgage from a high street lender if you have had a payday loan within 2 years.
Denise says
Perfect thank you! Will that work if I set up a direct debit to pay for a music account (£9.99 a month) then a direct debit at the end of the month to pay it off or does it need to be a physical purchase where I use my card?
In terms of my payday loans – the last one was taken out mid 2017 and paid off this year. Is it two years from taking the loan or paying it off? It would be a joint mortgage with my partner who’s got a really good credit score, I’m aware that mine may drag his down.
Sara (Debt Camel) says
so far as I know, a regular payment would be fine.
The “no payday loan rules since” are not written down – at least some lenders are going by the date a loan was repaid.
But a payday loan that has lasted 2 year – did you have a payment arrangement on it? Have you looked at making an affordability complaint? If you win the complaint, all negative marks are removed from your record. See https://debtcamel.co.uk/payday-loan-refunds/
Denise says
Yeah I had roughly 9 different ones at the same time alongside a loan/overdraft so I had a DMP to pay them off. I did write to the financial ombudsman but I lost the case as they were deemed affordable (no idea now because most of my wage was going on paying them back each month!). I wrote to them all individually as well – some have been removed from my credit report, 4 still show up. I wrote to these individual ones again but they refuse to move them and just say they will fall off after 3 years so I don’t know if it’s worth it to try again or just to wait?
It’s just really frustrating – I was young, naive and living beyond my means and got myself into debt (mostly my own fault) and didn’t realise the consequences further down the line. I’ve worked so hard to get rid of my debt and although it is a relief that I’m out of debt now I’ve still got a cloud hanging over me in terms of my credit score.
Graham says
Hi Sara
Should I keep low level credit cards open?
I have a credit builder @ £200 and a normal one @£1000
I will be clearing both these within the next 2 weeks.
So, question is, is it worth keeping them open for emergency or shred them?
My credit file is in tatters at the moment, and, I wont be looking / getting for credit anytime soon.
Save up and pay outright is now my mantra.
Weatherman says
Hi Graham
It can be useful to have credit available – either to cover you in emergencies (e.g. before you’ve saved up enough!), and it can help your credit score a bit as well.
But there might be cheaper and less ‘dangerous’ (i.e. not open-ended!) forms of credit you could use if you need it – for example, your local credit union might be a good way to both save and borrow in the future. Or you could put some ‘friction’ between you and spending on your credit card; putting it in an ice block can give you a sort of ‘cooling off’ (ha!) period that stops you making impulse purchases.
So there’s so simple answer. Take the points in Sara’s post above into account, and see what you think’s right for you.
Sara (Debt Camel) says
There are some numbers from Experian in this article: https://debtcamel.co.uk/credit-score-change/, They suggest that a credit limit of under £250 harms your credit score. So perhaps close that one?
When there is a lot wrong with your credit record the numbers in that article aren’t so helpful. Have one default drop off and you won’t see much improvement if you have a lot of others still showing… but if very low limit cards aren’t good and you don’t need it, then why keep it?
Germesaw says
Why do I need a credit card if I have always savings in my account.
I have one credit card with £1000 credit limit. Recently went down to £100 because I didn’t used it.
Now I have 2 flags on my credit report.
1. for depressing of the credit limit
2. Utilisation ( for not using my card ) problem.
I don’t need a credit from any one.
All I need is just to build my score .
…
Sara (Debt Camel) says
If you don’t ever want to borrow money, none of this matters.
If you do, then having a good credit score can help.
See https://debtcamel.co.uk/credit-score-change/ which explains how a very low credit limit harms your credit score.
And you get the best boost to your score if you use it every month for something small and set the card to be repaid automatically every month by direct debit, so you never pay interest.
Lewis says
So I applied for a balance transfer card and got the best offer available 25 months 0% interest with only a 1% fee. I was approved instantly with a limit of £4100 and as part of the application I had to input credit card details for the accounts I wanted to transfer a balance from.
I received an activation code the next day in post for one banking, so I went ahead and verified. The money was than transferred to my barclaycard and tesco credit cards so now I have zero balance on them cards.
Now this morning I receive a text saying my application has been declined even though they’ve already paid off my other credit cards. You’d think they would make sure they are 100% satisfied before paying out money.
I’ve been reading the terms and conditions into more detail and believe they can order me to pay back the money immediately on request. But I don’t have that money available to give them back. Can they just do a chargeback from the cards they paid off for me?
I called them and they said there were inconsistencies in my application based on information they already hold on me. I’m a new customer to MBNA but was a Lloyd’s customer few years ago. So I’m assuming they have access to my details there.
They wouldn’t go through the inconsistencies with me, which may have been a small error and a quick resolution.
What are my options and best route to go down?
Weatherman says
Hi Lewis
An unusual and annoying situation…
I would ask the provider of your balance transfer card what happens to your previous balances. You should not be out of pocket because of their mistake – as you say, they released the funds! If you are, complain to them in writing, and if you’re not happy with their response (or they just don’t respond within 8 weeks) go to the Financial Ombudsman Service.
I’d also check your credit reports. It’s possible there’s something on there that’s an issue.
If it was just that you accidentally gave some inconsistent information that flagged you up on that particular provider’s system, you should be OK to apply to another company to transfer your balance – even if you get a slightly less good deal. Good luck!
Sara (Debt Camel) says
I too have never heard of this happening.
I think you need to follow up what these inconsistencies are and explain/challenge them, because there is some risk – I can’t guess how large – that the lender may add these to one of the national fraud databases ( CIFAS, National Hunter) which would then make your life very difficult for years, so better to deal with this now. If the lender says they are doing this you can make a formal complaint if this is unfair.
A lender can always close your account. But I would be surprised if they can demand you repay the balance immediately. I would expect you to not be able to use. The new card but be able to pay. off the balance as per the T&Cs… which in your case includes the initial 0% period. Ask them to confirm this. If they say you have to repay immediately, or the account is incurring interest, make a formal complaint.
As Weatherman says, complaints can be sent to the Financial Ombudsman.
Lewis says
But was contacted yesterday saying this information was incorrect and that they are in fact reversing the payments made to the other two credit cards.
The advisor offered me £100 compensation because of their mistake. I said I wasn’t really happy with the while service and misleading information. She then said she wants to offer me £250 compensation and instead of sending a cheque she wanted my bank details right then and instantly bank transfered the money.
I’m now waiting for the letter confirming their outcome and the letter stating I can now speak to the financial ombudsman.
Regarding the inconsistencies they said its with my address, but I’ve lived here for about 7 years. They would not discuss further or advise me how I can sort this. Credit file is clean except the hard credit search from this application. Also clearly states I’m on the electoral roll for 7 years at the address I made the application in.
(02/02)
Sara (Debt Camel) says
ok so it sounds as though this is heading to the Finacial Ombudsman (FOS).
Can you quantify how much interest you will be paying on these two cards for the rest of what would have been the interest free period?
As soon as you get the letter rejecting your complaint, I suggest you send MBNA a Subject Access Request asking for a copy of all your personal information including recordings of phone calls. See https://www.mbna.co.uk/privacy.html#11 This may be some help to your FOS complaint, it’s hard to tell until you see what there is.
Also after about a month I suggest you check all three fraud databases to see if there is anything on there. See https://debtcamel.co.uk/name-fraud-database/ for how to do this.
Lewis says
I’ve been in touch with MBNA, they are asking Tesco and Barclaycard for the money back by putting in a reversal request.
This will now leave me in a worst situation because I still had about a year interest free period on both cards, but decided to consulate the debt onto one card with a much longer interest free period.
I’ve now been told that when the money is reversed I may be subject to my standard interest rates on those cards until the balance is paid off.
I did manage to speak to an advisor on Saturday and she confirmed that I would still be granted the 25 month interest free period but that I would not be able to make any further purchases as the card is switched off and the account would be closed once the balance is repaid.
(01/02)
Dan says
Hi Sara,
Looking to apply for a mortgage with my partner (who has no bad credit history whatsoever) and I have multiple credit cards/overdrafts which I’m looking to close down, as most have been cleared during the last year or so.. The credit cards/overdraft are:
A) HSBC – (7000 limit, around 3500 balance) 5 yrs old
B) Barclaycard – (3500, zero balance) 6 yrs old
C) JL – (2400, zero balance but one missed payment in 2018) 7 yrs old
D)Natwest – (500, zero balance) 10 yrs old
E) Main current a/c – 1000 overdraft (zero balance) 13 yrs old
F) Student current a/coverdraft – 1600 (zero balance) 12 yrs old
G) Monzo – zero balance, 3 yrs old (use for daily payments)
H) Lloyds current – zero balance, never used ever, 12 yrs old
My questions are:
1) I want to close C, D, F, & H, as I don’t use these and would like to reduce credit – do I close them down gradually i.e. one a month or all at once? I know closing any account will drop credit score slightly, but will credit score bounce back in a couple of months or longer? Also, which ones would you recommend closing, if not those ones please?
2) I had my last payday loan in July of 2020, but paid it off the same month and understand high street lenders need 2 years to wait, but if I had 10-15% by spring next year, is that more acceptable to a mortgage broker?
The interest rates for each credit card are much of a muchness, so any help with this will be much appreciated, thanks!
Sara (Debt Camel) says
so you are clearing down A, not just paying the minimums?
who was your last payday loan from? did you have a lot before that?
Do you have any defaulted debts that have been cleared?
Dan says
I am clearing down A, yes (paying at least 200-300 more than the minimum).
It was with fernovo I believe, stagemount ltd is on my file as last hard search. I’ve had quite a lot down the years (a little over 50) that was the last one on my file.
No defaulted debts at all, nothing else to be cleared.
Thanks
Aaron says
Hello! I have a credit card with First Direct, my current account provider, which I haven’t used for a while. When I phoned today to ask for a replacement card – I wanted to use it to pay a regular bill on, paying off the balance in full each month, to build my credit score up following paying off a DMP – they said it was inactive, and if I did want to use it I would have to close the account and reapply – the account exists in their system and on my internet banking, but as it hadn’t been used for a while they didn’t issue a new physical card to me, and it’s been marked as inactive on their system. I paid it off in full before the DMP began and so haven’t used it for five years.
However, the account is showing as active on all the credit reference agency files with a balance of 0 and limit of £3500 – should I keep it ‘open’ just to keep my credit utilisation ratio up, or should I request to close it?
Sara (Debt Camel) says
What will your credit utilisation be like without it?