You Paid Off Your Credit Card - Now What?

/ BY / Credit 101

When you're trying to reduce your debt, paying off a credit card can be both financially and psychologically rewarding. But once you’ve paid it off, what should you do with it?

Think twice before you cancel your card.

Once you get a card paid off, it can be tempting to close the account altogether to avoid the temptation of running it up again. But cancelling a credit card can actually be damaging to your credit. Among other things, your credit score is determined in part by the length of your credit history and the amount of available credit you have. As a general rule, you may want to hang onto your credit card in the following situations:

  • The card doesn’t have any negative marks. When you cancel a credit card, its history still stays on your credit report.
  • Your card has great perks that you actually use. If your card gives you airline points, saves you money on gas, or has other perks you use that save you money, go ahead and keep it.
  • You’ve had the card a long time. Because 15% of your credit history is the amount of time you’ve had the card, it makes sense to keep the ones you’ve had for a long time.
  • The card has a high credit limit. If your card has a high limit but a $0 balance, it’s worth hanging onto. This can lower your overall credit utilization, which makes up a 30% of your credit score.
  • You want to get a mortgage or car loan in the next year. Your credit score will dip slightly when you cancel a credit card, but that will go away in a year or so. If you do cancel your card, make sure you wait until after you’ve made any big purchases on credit.

When to cancel your card

Sometimes, it makes the most sense to cancel a credit card. The following situations are a few of those times:

  • The card has a very high interest rate. You don’t want to have to rely on a card that has a high interest rate for emergencies.
  • You don’t agree with the card’s terms. For example, if the card has an annual fee or other terms you don’t agree with, you may want to cancel it.
  • The card has a small limit. If a card only has a limit of a few hundred dollars, closing it won’t really affect your overall amount of available credit.
  • You already have multiple credit cards. According to Fair Isaac, which is responsible for the FICO scoring system, more than seven revolving credit cards hurt your score.

Avoiding overspending when you keep your card

Don’t fall into the common trap of paying off your credit card, only to run the balance right back up. Think of how hard you worked and how long it took you to pay off your credit card and resist the temptation to start charging things you can’t purchase with cash. Remove it from your purse or wallet altogether or even cut it in half if it keeps you from incurring more debt. If you’ve stored the card’s number in different shopping sites, make sure you

If you do use your card for points or in an emergency, make sure you pay the balance off within 30 days to avoid paying interest.

Paying off a credit card is a big accomplishment, especially when you’re trying to pay down your debt. Whether you keep your card or cancel it, make sure you’ve weighed the pros and cons first.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.