Does balance transfer close an old credit card?

The Great Balance Transfer Debate: Should You Close That Old Card?

Successfully transferring a balance from one credit card to another can feel like a significant financial victory. That hefty balance is now potentially accruing less interest, and you’re breathing a sigh of relief. But what about the old card? Does a balance transfer automatically close it? No, it doesn’t. A successful transfer simply moves the debt; it doesn’t erase the account. This leaves you with a critical decision: should you close the card?

The answer, like most financial decisions, isn’t a simple yes or no. Closing the card after a balance transfer carries both potential benefits and drawbacks that require careful consideration of your individual financial situation.

Arguments for Closing the Old Card:

• Simplifying your finances: Fewer cards mean less paperwork, fewer statements to track, and a simpler overall financial picture. This is particularly appealing if you’re already managing multiple accounts.
• Avoiding temptation: If you have a history of overspending, closing the card can eliminate the temptation to use it again, helping maintain better spending habits.
• Potentially lowering your credit utilization ratio: While closing a card can sometimes slightly lower your credit score initially (more on this below), if you’re consistently maxing out your cards, lowering your overall credit utilization by closing a card with a high limit may actually be beneficial in the long run.

Arguments Against Closing the Old Card:

• Negative impact on your credit score: Your credit history length is a significant factor in your credit score. Closing a long-standing account, even one with a zero balance, shortens your credit history, which could temporarily lower your score. This is especially true if the card has a high credit limit and represents a large percentage of your available credit.
• Reduced credit limit and available credit: Closing a card immediately reduces your overall available credit. This can increase your credit utilization ratio (the percentage of your available credit you’re using) which can negatively affect your credit score, especially if you keep the same spending habits.
• Loss of potential rewards and benefits: Some older cards might offer valuable rewards or benefits that you no longer wish to use but could be advantageous in the future. Closing the account means forfeiting these perks permanently.
• Impact on average age of credit: Closing older accounts can decrease the average age of your credit accounts, which is a factor in your credit score calculation.

Before making a decision:

• Review your credit report: Check your credit score and report before and after any changes to your credit accounts. This will allow you to monitor the impact of closing the card.
• Consider your credit utilization: Evaluate your overall credit usage. If closing the card significantly impacts your credit utilization ratio, it might be better to keep it open, even if you don’t use it.
• Weigh the pros and cons: Carefully weigh the potential benefits of simplifying your finances against the potential negative impact on your credit score.

In conclusion, closing a credit card after a balance transfer is a personal decision. It’s not inherently good or bad; its impact depends entirely on your individual financial situation and credit profile. Thorough consideration of the potential consequences, combined with monitoring your credit report, will help you make the best choice for your long-term financial health.