Does Closing A Credit Card Hurt Your Credit Score?
There are several situations where canceling a credit card is appropriate. You may be sick of paying the annual fee, you no longer need the card, or you’re prepared to switch to a card with a better rewards system. But closing a credit card might damage your credit, particularly if it’s an account that has been operating for a while and is in excellent standing.
The following information is important to know regarding the impact of closing a credit card on your credit.
What will happen to your credit
score if you close a credit card?
The credit limit on a credit account is
removed when you close the account. Consequently, your credit utilization ratio is the proportion of your available credit
that you are utilizing. Jumping up indicates a danger to lenders because it
indicates that you are utilizing more of your available credit than is normal.
According to experts, the utilization rate should be kept under 30%, and the
lower it is, the better.
Closing a credit card may also have an impact
on your credit score because it
might decrease the age range of accounts on your credit history, especially if
the account has been open for a long period. Your credit score is influenced by
the age of your accounts, with longer payment histories improving your score.
When it makes sense to cancel a
credit card
There are a few circumstances where canceling
a credit card might make sense. For example, if:
●
You don't think the card's
benefits are worth its high annual charge.
●
You must keep a balance on the
card because the interest rate is high.
●
You are finding it difficult to
control your debt, and using the card can make it harder to resist the desire
to spend beyond your means.
●
You want to switch out a basic
card, such as a secured or student card, for a normal or rewards card.
The best time to keep the card
On the other hand, there are some situations
in which it might be advisable to keep the account open such as when:
●
On your credit history, it is the
oldest account.
●
You don't have many open credit
accounts, which could lead to a thin credit file and make it more difficult for
you to get future credit.
●
You're only canceling it because
you don't use it very much.
How to securely cancel a credit
card
Here are the measures to take if you've
determined that it makes sense for you to close your credit card account so
there are no issues:
●
If the credit card has rewards,
use any remaining rewards before they expire.
●
Any authorized users on your
credit card account should be informed that the account is being closed and
asked to destroy their card.
●
If you have an unpaid amount, get
in touch with the company that issued your credit card and create a plan for
paying it off. Pay down the card if at all possible before canceling.
Conclusion
In some cases, closing a credit card account
makes sense, but it’s important to realize that it may hurt your credit score.
Consider checking your credit report to determine where you are and to make
sure that shutting the account won’t leave you with a credit history that is
too thin or too recent before you close the account. Although the consequences
of canceling a credit card account are temporary, keeping an old account open
could be beneficial if you can.
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