The Truth About Canceling Your Credit Card

As you can cancel the credit card when you do not need it, the credit card issuer can also cancel the credit card at any time. You will not get any warning if your credit card is canceled and your card is canceled after having a transaction declined. Here are some reasons a credit card issuer can cancel a credit card.

What It Means When Your Credit Card is Cancelled

A canceled credit card seldom has a better outcome. Your credit score can drop, particularly if the credit card has a balance because it increases your credit use. The great news is that your credit score can improve over time as you decrease your credit card balances. If your credit card is canceled, you are responsible to make at least the minimum payment unless your balance is totally repaid.

How does closing a credit card affect credit?

Does closing a credit card affect your credit? It can, depending on how many other credit accounts you have open and whether you utilize those credit accounts responsibly. Knowing how your credit score works will help you decrease the effect that a closed credit card may have on your credit.

Here are the 2 ways in which closing a credit card affects your credit:

Closing a credit card can increase the credit utilization ratio

30% of the FICO credit score is made up by the credit utilization ratio. Since your credit utilization ratio is the ratio of current balances to your available credit, decreasing the amount of credit available can cause the credit utilization ratio to increase and your credit score to decrease.

Closing your credit card can lower the length of the credit history

This makes up 15% of your FICO credit score. It is worth noting that you will not see the impact on your credit score right away, since closed credit accounts yet contribute to your FICO credit score unless they fall off your credit report which may be as long as 10 years from now.

How much does closing a credit card can hurt your credit? It is not easy or simple to say. If you continue to utilize other credit accounts responsibly making on-time payments each month, maintaining a lower credit use ratio, paying off your balances regularly, etc. Your credit score is not possible to suffer too much. A person with a positive credit history is probably going to have a positive credit history even if they close one of their credit cards.

Reasons you should not close or cancel your credit card

Is closing a credit card bad? Not essentially, but that does not mean it is your great choice. Here are 5 reasons you should not close a credit card:

Your credit score is right on the edge of the good credit range, and you do not need to risk losing any credit score points.
You are planning on applying for a mortgage, and you do not need to risk losing any credit score points.
The credit card you are thinking about closing is an old credit card, and you do not need to risk shortening the length of your credit history.
You have many outstanding balances on credit cards, and closing one card will decrease your available credit to the point where it has a serious negative impact on your credit use ratio.
You do not have a better reason to close the credit card (you do not use it as frequently as you utilize other cards), and that makes you wonder whether it is time for closing the account.

Reasons you should close a credit card

There are some reasons for closing your credit card. Here are 5 reasons you can need to close a credit card:

You’re having trouble using credit cards responsibly perhaps you are missing payments, or perhaps you are worried about going into credit card debt that you will not be able to pay off.
You’re separating from a partner and want to close a joint credit account.
You have a retail credit card, but you do not shop at that store.
You have an airline credit card, but you no longer fly that airline and you do not need to pay the high annual fees associated with keeping the airline rewards card open.
You have a premium credit card that charges a very high annual fee, and the card no longer makes sense with your lifestyle or spending habits

Should you cancel your credit card? Probably not

The first question to ask before canceling a card is: Do you want to cancel it? Or will it be good to put it away and not use it? Having an available line of credit on a card with no balance helps your credit score, and it can come in handy in an emergency or if its terms improve in the future.

However, there are 2 occasions when closing a credit card is known as for:

You cannot control spending and want to eliminate the temptation.
You pay an annual fee for a card THAT you are not using.

In those cases, it makes sense to cancel cards, since they’re unnecessarily costing you money.

Consider alternatives to canceling your credit card

Even if closing a credit card will not affect your lifestyle as well as credit profile too much, it can be simply not to close the card. Actually, there are many alternatives that can end up being less risky.

Put the card in a drawer. Perhaps you have decided you do not like using credit cards. If that is the case, consider keeping the card and putting it away rather than closing it. This course of action can look obvious, but keeping the account open while eliminating the temptation to use the card can be a straightforward way to keep the card without harming your credit.
Find another way to handle mounting debt. If you are trying to get out of credit card debt and do not need to add new payments, you can be considering negotiating to close the card account with the issuer. But you can be able to pay off your debt with a balance transfer credit card as well as a personal loan. These choices can offer a more manageable way of paying off your debt.
Downgrade your credit card so that you can avoid an annual fee. If you are paying an annual fee on a card you do not use, you may ask your credit card company if you can keep the account open.

Don’t close that card yet! – Give us a call! Our team at Masters Credit Consultants can provide you with a free credit consultation or provide the credit repair and rebuild services you need starting today!