What happens to your old credit card after a balance transfer?

If you transfer the total amount owed on one credit card to another card, your balance falls to £0. That doesn’t mean the account closes automatically, though. Here’s what you need to know.

What happens to your account once you pay off the balance?

When you clear the balance on a credit card, you owe nothing and have no further payments to make until you spend more. However, even when your balance is £0, the card account stays open – unless you take action to close it.

If you do want to shut the account, there’s more to it than cancelling Direct Debits and just not using it anymore. Providers sometimes send you a letter offering to shut an account you haven’t used for a long time. However, in most cases, you have to contact the card company to close the account.

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When you do a balance transfer, does it close the account?

No, doing a balance transfer from a credit card does not close that account. 

In fact, when transferring a balance, it’s sensible to keep your old account open and continue making payments as required until the provider completes the transfer.

After that, if you want to close your account, you need to contact the card provider to do so. And you can only do this once you’ve cleared the balance on the account in full. Whether you should or not depends on a variety of factors. 

However, if you do close your account, it’s important to destroy the card at that point, too.

Read more…

• How long does a balance transfer take?

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Should you close your old account?

There is no right answer to whether you should close a credit card account you’re not currently using.

There are pros and cons when it comes to cancelling an old credit card. The right decision depends on how many other credit cards you have and how easily you can control your spending.

Pros of cancelling your old credit card

Good reasons to cancel an old credit card account include:

• Having more credit cards increases your risk of falling victim to fraudsters – and makes fraud harder to spot 

• Keeping your account open increases the temptation to carry on spending – and paying interest on any debts you don’t clear in full each month

• Continuing to have the account may involve paying an annual fee – which is annoying if you don’t plan to use the card

Cons of cancelling your old credit card

Good reasons to keep an old credit card account open include:

• Maintaining the account can have a positive impact on your credit score – because closing it reduces the percentage of available credit you’re using (your credit utilisation ratio)

• Having a credit card for a long time can also help your credit rating – because it demonstrates you’re a reliable customer

• Having a credit card can give you access to certain benefits, such as rewards – although you need to keep spending to get these

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What is a credit utilisation ratio?

Your credit utilisation ratio is the percentage you use of your overall credit limit.

Say you have one credit card with a credit limit of £2,000 and another with £3,000; your overall credit limit is £5,000.

So, if you owe a total of £2,500, your credit utilisation ratio is 50%.

However, cancelling the card with a £2,000 credit limit would push this ratio much higher – to around 83%. This could discourage banks from lending to you – especially as they generally prefer customers with a credit utilisation ratio of no more than 30%.

Just remember that keeping an old card open for this reason only works if you keep the balance of the second credit card at or around £0.

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Top tip

If you keep an old credit card account open, it’s often a good idea to ensure it remains active by using it to cover a small recurring payment, such as a gym membership or a streaming service subscription.

This can help improve your credit score – providing you also set up a Direct Debit to clear the payment amount in full every month.

What happens if you cancel a new balance transfer credit card?

You can’t cancel a credit card unless you clear your balance in full.

So, it's unlikely you'll be able to cancel a new balance transfer card unless you have a windfall that allows you to pay your debt off fast.

On the other hand, cancelling a new balance transfer card before the transfer goes through results in the outstanding balance staying on your old credit card – and continuing to rack up interest at the same rate.

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