Does Having A Zero Balance Affect Your Credit Score?
This article will discuss how a zero balance in your credit card does not indicate a null balance on your credit report.
Here’s why zero balance will not be used to work out your credit score:
- Users’ credit card particulars are detailed and registered at random times during the month, mostly on the closing date of the account statement.
- Consequently, the balance on your credit card may not be zero when your report is sent to credit bureaus. However, this also depends on whether your credit card has been used after making the full balance payment.
For instance, zero balance will not appear on your credit report if you make a purchase worth $100 on the 5th of the month and make the full payment on the 17th. Bear in mind that this will be the case only if your credit report is upgraded on the 12th.
The personal credit report will almost always indicate numbers more than your current balance unless you have zero balance all the time.
Luckily, having some balance will not affect your credit score considering your balance does not exceed 30% of the credit limit.
A high credit balance is seen as a risk factor by lending institutions because it outweighs the possibility of clients handling additional debt obligations.
You may consider if it’s a good option to close your account after paying your credit down to a $0 balance. It is normally advised to let your credit card account continue despite having a zero account balance.
It is ideal for letting your account remain open after paying off your balance for the following reasons:
Reasons to Keep Your Credit Card Account Open
There are sufficient grounds to keep your credit card functioning despite zero balance.
1. Low Credit Use
Your credit utilization rate can be conserved due to having zero balance in your credit card and still keeping it functional. Credit utilization is an integral component in the “amount owed” section of the credit score, which amounts to 30% of the FICO score assessed by 90% of reputed lenders. Closing a credit card account will result in you losing the available credit which comes with the card. Having balance in other credit cards can escalate the credit utilization rate, which will reduce the credit score.
2. The Short Duration of Credit History
The average period of your credit history can be affected due to shutting down your $0 credit card account. Your credit history makes up 15% of your credit rating. Regardless of this, if an account is closed in good standing, the good payment history remains on a credit report for about ten years. This may assist you with your credit score in that duration of time.
3. Losing Card Bonuses
Closing an account would mean losing access to rewards earned via credit cards and other benefits. Ensure to retrieve any unclaimed rewards or perks before closing your account, particularly if the annual fee has been paid.
Why You May Want to Close Your Credit Card Account
You might want to seal your credit card account if you are being charged a yearly fee while no longer getting much use from it. For example, if you own a travel credit card with serious charges and have not availed of the travel perks, it is recommended to close your account.
If you close your account in good standing while responsibly using other credit products, any strike to your credit score will be short-term and not difficult to recuperate from.
Paying your other credit account balances will help restore your credit score more quickly.
What Can Be Done Instead of Canceling Your Credit Card?
The following options exist if you aren’t using your credit card much but still want to keep your account operational:
- Demote your credit card: A few lenders permit you to downgrade your credit card to another card they offer; the no-annual-fee card. This is also recognized as a product switch that allows you to keep your account running without paying a yearly fee.
- Has your issuer waived off the annual fee?
- Subscribe to a new card: You may want to look into getting a new card for added benefits like rewards or intro 0% APR (Annual Percentage Rate) financing. Bear in mind that this can possibly cause a minor pull in your credit report, lowering your credit score. If the balance in the card is maintained at zero, you can gain additional benefits from the new card offers.
Keep Your Credit Card Account Active
Your account can be closed due to inactivity at a $0 balance, so informing your issuer about keeping your account active is necessary.
If no payments or purchases are made from the card for a long period of time, the account can look inactive. Therefore, some automated transactions should be activated on the card, such as recurring subscriptions, to ensure that the full balance is paid timely every month.
Multiple Credit Cards
If you own multiple credit cards, paying off the balance for one automatically reduces the credit utilization of all your credit cards, boosting your credit score. This depicts that you are not fully using up the amount of credit provided to you.
To Wrap It Up
Whether you decide to keep your balance at $0 and maintain a credit card account or close it is based entirely on your financial situation and preference.
Sign up for free with credit lending institutions if you want to know whether any change in your credit card accounts will have an effect on your credit score.
Having a high balance can negatively affect your credit score by increasing credit utilization – a ratio of credit card balance to the credit limit.
Some believe that having a balance in your credit account is necessary to build a good credit score, while others believe that having zero balance affects your score, bringing it down. However, zero balance does not pull down your credit score unless zero balance is due to the card not being used.
If your balance is zero and your card is not being used, your bank might stop sending you your credit report updates and even close your account, affecting your credit score. So it’s best left for you to decipher, does having a zero balance affect your credit score?
