If you close a credit card with a balance, you'll still be responsible for that debt. Card issuers will continue to send statements in the mail, and interest will still be applied to that balance.
A negative credit card balance is nothing to worry about. It just means that you either overpaid your credit card bill or your credit card company has lowered your balance due to a refund, a charge reversal, a waived fee or a statement credit.
Your credit utilization ratio goes up
By closing a credit card account with zero balance, you're removing all of that card's available balance from the ratio, in turn, increasing your utilization percentage. The higher your balance-to-limit ratio, the more it can hurt your credit.
It's better to leave it open and let the company close it. If it is one of your oldest credit card it might be beneficial to keep it open since that helps your credit age.
You don't want to close an account if it makes your credit utilization ratio go up, especially to more than 30%. Alternatives to closing a credit card include upgrading or downgrading the credit card in question to better suit your needs.
Closing one credit card account likely won't make a big enough dent to hurt your chances of approval with future lenders, especially if you'll still have another form of revolving credit open, but it's worth being mindful of this if you want the highest credit score possible.
Instead of canceling a card, you can keep the account active by using it to make one or two small purchases a month. If keeping the card in your wallet is too much temptation: Cut up the card. If you don't cut up your card, store it in a safe place where you won't be tempted to use it.
If you close your oldest accounts, you risk lowering the length of your credit history, which accounts for 15% of your FICO Score. Pay off all your credit card balances. It's important to pay off all your credit card balances before closing a credit card — not just the one you're closing.
If you pay off all your credit card accounts (not just the one you're canceling) to $0 before canceling your card, you can avoid a decrease in your credit score. Typically, leaving your credit card accounts open is the best option, even if you're not using them.
Closing a bank account with a negative balance is a different story, however. If you close an account that's been overdrawn and don't resolve the negative balance (including paying any overdraft fees), the bank may send the debt to a collection agency.
“(But) remember that closing the card does not release you from the obligation to pay off the balance,” said Erika Kullberg, attorney, personal finance expert, and founder of Erika.com. “Interest will continue to accrue until the debt is repaid in full.
Request a deposit: Check with your credit card issuer to see if you can request the negative balance amount to be deposited to your bank account. You can also ask for a check, money order or cash. Make a purchase: This is the easiest way to resolve a negative balance.
You Can Be Sued for Credit Card Debt
If this happens, you'll be served with legal papers. Failing to respond can mean losing by default, and in a worst-case scenario, a creditor can garnish your wages or put a lien on your property.
Closing a credit card account can negatively impact your credit, though how much it hurts your score depends on your credit history. Factors like how many other accounts you have open, how long you've had the accounts and the balances can all play a role.
Closing a credit card with a zero balance may increase your credit utilization ratio and potentially drop your credit score. In certain scenarios, it may make sense to keep open a credit card with no balance. Other times, it may be better to close the credit card for your financial well-being.
Some consumers are under the false impression that if credit is closed by the consumer it impacts them less than when the creditor closes the account. This is totally false. The scores can drop just as much depending on many factors including the balance to limit ratios on revolving credit.
While closing a credit card can affect your credit scores, it's hard to say by how much. That's because there are other factors—such as the length of your credit history and whether you have a record of making payments on time—that also play a role in your scores.
Closing a credit card could change your debt to credit utilization ratio, which may impact credit scores. Closing a credit card account you've had for a long time may impact the length of your credit history. Paid-off credit cards that aren't used for a certain period of time may be closed by the lender.
Keeping a low credit utilization ratio is good, but having too many credit cards with zero balance may negatively impact your credit score. If your credit cards have zero balance for several years due to inactivity, your credit card issuer might stop sending account updates to credit bureaus.
It may be possible to reopen a closed credit card. In general, it's more likely to be an option if the card was closed for a minor reason, such as an inactivity, or if you closed it yourself. If your card was closed due to missed payments, on the other hand, your lender may not be willing to reinstate it.
Key takeaways
If you don't use your card, your credit card issuer may lower your credit limit or close your account due to inactivity. Closing a credit card account can affect your credit scores by decreasing your available credit and increasing your credit utilization ratio.
Closing a personal line of credit can harm your credit score, primarily by affecting your credit utilization ratio. When you close a line of credit, you reduce your overall available credit, which can also impact the length of your credit history.
There's no such thing as “too long” to keep a credit card. If you're happy with your card and getting a lot of value out of the rewards, there's no harm in sticking with it. Likewise, if you've stopped using a card and it doesn't charge an annual fee, in most cases it's preferable to keep the account open.