What Happens When You Close a Credit Card With a Balance?

Closing a credit card account with an outstanding balance means you can no longer make new purchases, but the existing debt does not disappear. This decision impacts your ongoing financial responsibilities and your credit standing.

Your Ongoing Financial Obligation

Closing a credit card with an outstanding balance does not eliminate your responsibility for the debt; you remain obligated to pay the full amount owed to the credit card issuer. The original terms and conditions of your card agreement, including the interest rate, minimum payment requirements, and due dates, remain in effect for the outstanding balance. You will continue to receive monthly statements detailing your balance, accrued interest and the minimum payment due.

Interest will continue to accrue on the unpaid balance until it is paid in full. Credit card interest rates are variable and can change. Annual or monthly fees may still apply until the balance is completely settled.

Impact on Your Credit Score

Closing a credit card account can negatively influence several components of your credit score. One significant factor is your credit utilization ratio, which is the percentage of your total available revolving credit that you are currently using. When an account is closed, the credit limit associated with that card is removed from your total available credit, even if the balance remains unchanged.

This action can cause your credit utilization ratio to increase, which negatively impacts your credit score, as a higher ratio suggests greater reliance on debt. For example, if you have $1,000 debt on a $5,000 limit card, and close another $5,000 limit card, your total available credit drops from $10,000 to $5,000. This increases your utilization from 10% to 20%, even if your debt hasn’t changed. Experts often recommend keeping this ratio below 30% for a healthy credit score.

The length of your credit history also plays a role in your credit score. This factor considers the age of your oldest account and the average age of all your credit accounts. Closing an older credit card can reduce the average age of your credit accounts, negatively affecting your score. While a closed account with a good payment history can remain on your credit report for up to 10 years and still be included in score calculations, its positive influence may diminish over time as it ages off the report.

Your credit mix, which reflects the diversity of your credit accounts, can be modestly affected. Having a variety of credit types, such as revolving accounts (like credit cards) and installment loans (like mortgages or car loans), is favorable. If the closed credit card was your only revolving account, its closure could reduce the diversity of your credit portfolio, potentially having a minor negative impact on your score.

Managing Payments After Closure

The obligation to make timely payments on the remaining balance persists. Continue making at least the minimum payments by the due date to avoid late fees and prevent negative impacts on your credit score. Late payments, especially those over 30 days past due, can be reported to credit bureaus and significantly damage your credit score, remaining on your report for up to seven years.

You can typically make payments on a closed credit card through various methods:
Many card issuers provide online portals that remain accessible for managing payments on closed accounts.
Alternatively, you can often send payments via mail, usually to the address provided on your monthly statements.
Payments can be made over the phone by contacting the credit card company’s customer service line.
Some issuers may even allow payments at a local branch if they are also a bank.

To accelerate the payoff of the outstanding balance, you might consider specific debt repayment strategies. The debt avalanche method prioritizes debts by interest rate, directing any extra funds towards the debt with the highest interest rate first. This approach can result in paying less interest over the life of the debt. Conversely, the debt snowball method focuses on paying off the smallest balance first to build momentum and motivation, then rolling the payment amount into the next smallest debt. Both methods require making minimum payments on all other debts while aggressively paying down one specific balance.

If you encounter difficulties making payments, communicating with the card issuer is a viable option. Many credit card companies offer hardship programs designed to assist individuals facing financial challenges, such as job loss or medical emergencies. These programs may involve temporarily reducing minimum payments, lowering interest rates, or waiving certain fees for a set period, typically ranging from three to twelve months. Contacting the issuer directly to inquire about such programs before missing payments is advisable, as they are often not widely advertised.