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One of the biggest pieces of advice that you’ll encounter when working on your financial health is to eliminate and avoid credit card debt. This is excellent guidance to follow for personal purchases like vacations, clothes or that new TV that you just can’t wait to buy. It’s also great advice when boosting your credit profile. However, too often this advice is too often followed by suggesting that you close your credit card accounts. You won’t hear this advice often, but closing your credit cards accounts is a mistake that can hurt your personal credit score and prevent you from making money in business.

The benefit of credit cards

Entrepreneurs and business owners are inundated with bad advice when it comes to credit cards. One of the biggest mistakes an entrepreneur or business owner can make is confusing business expenses with personal expenses.

Credit cards can bring in a lot of revenue for your business. They are a great resource for money when you are starting a new business venture and building credit. The money you spend towards a business should help you pay off the credit cards and bring in even more revenue in the future. This is a far cry from personal expenses that leave you with debt rather than boosting your wealth.

The negative impacts of closing a credit card

Closing a credit card directly and immediately affects your credit score. 35% of your credit score is made up of what is called credit utilization. This is the measurement of your ability to access and use any type of credit. To boost your credit utilization, you need to show available credit. If you don’t have any available credit, your score will plummet.

In addition to this, closing a credit card can also hurt your credit history, which accounts for 15% of your credit score. Credit history is the length of time that your accounts have remained open. When it comes to credit history, the longer the better. When you have older accounts open, it shows prospective lenders that you’re less risky to lend to. However, when you close your credit card accounts, your average age of accounts decreases and affects the credit history portion of your score.

When to actually close a credit card

One of the worst things you can do is close a credit card account, especially if it is a major one with access to large amounts of capital. However, it’s different to cancel an expensive furniture store credit card or retail credit card that isn’t benefiting you in any way. If you have any of these expensive cards that are fairly new, it may benefit you more to close them.

Avoiding temptation

If you’re worried that you’re not disciplined enough to keep credit card accounts open, then cut up the actual credit card, throw it away, and keep the account open. This will benefit you more than closing the accounts.

By using this one tip, you will be able to maintain a stronger credit score by directly influencing the credit utilization and credit history part of your credit score. This will give you access to more capital and lower interest rates in the future.