Is it bad to cancel a credit card?

You’ve probably heard that you shouldn’t cancel a credit card so you don’t hurt your credit score. While it is true that canceling it could affect your credit score, this is not always the case. Then, Is it bad to cancel a credit card? Below we explain it in detail.

In general, it’s best to leave credit cards active, even if you’re not using them. However, there are some valid reasons why you may want to cancel a credit card.

Key information:

  • Although there are different general credit advice, in certain circumstances it is necessary to close a credit card account.
  • A credit card can be canceled without hurting your score credit, if you know what you are doing.
  • The closing of a credit card will not reduce the age of your record of credit.
  • You should make a checklist when you cancel a credit card.

Is it bad to cancel a credit card?

There’s a reason why credit experts advise against canceling credit cards that is not used. Beverly Harzog, credit card expert and consumer finance analyst for US News & World Report, explains, “Closing a credit card can lower your score, not raise it.”

This score drop often occurs because canceling a credit card can impact your credit utilization ratio. The ratio measures how much of your total available credit is being used, based on your credit reports.

Here’s a simple example of how closing a credit card with a $0 balance could backfire.

  • The “number one” credit card has a limit of $1,000 and a balance of $1,000.
  • The “number two 2” credit card has a limit of $1,000 and a balance of $0.
  • The use of your credit on both cards combined is 50%. ($2,000 total limits vs. $1,000 total balances = 50% utilization).
  • You cancel credit card number two and your credit utilization jumps to 100%. ($1,000 total balance vs. $1,000 total limits = 100% utilization).

By closing a credit card, you risk increasing your credit utilization ratio and hurting your credit score.

Reasons to cancel a credit card

Cancel a credit card is usually a bad idea. But nevertheless, there are some circumstances where canceling a card might be the right thing to do. Here are three:

separation or divorce

Is better close joint card accounts credit during a separation or divorce. As a joint cardholder, you will be responsible for any past or future charges to the account. It is not strange that An angry ex overcharges a joint card as revenge.

If that happens, or even if routine expenses occur on a joint account after separation, charges will also be your responsibility. Your divorce document might say that your ex-spouse is responsible for the debt, but that will not release you from your obligation in the eyes of the lender.

High annual rates

If the issuer of your card charges you a high annual fee for an account you don’t use, the cancellation could be justified. However, consider the following first:

if you receive account benefits that exceed the annual fee, like travel credits and benefits, might be worth the annual cost. A fee from a credit card that you do not use or from which you do not obtain benefits of any kind is not justified.

Before canceling the card, try calling the issuer to request that the annual fee be waived. Be sure to mention that you are considering closing your card account. It doesn’t hurt to ask, and you might be pleasantly surprised.

too much temptation

Some people find the temptation to use credit cards Too big And they can’t resist. And while for some this may be a valid reason to cancel a card, there are other alternatives that can help curb overspending without sacrificing your credit score.

For example, could you take the credit cards out of your wallet and store them in a safe place. By not having your cards handy, you may find it easier to resist the temptation.

Cancellation Checklist

When canceling a credit card, follow the following six simple tips to help you carry out the process:

  1. Redeem the rewards unused credits to your account before you call to cancel the card.
  2. The ideal is to pay the entire balance of the credit card bringing the outstanding balance to $0 before canceling the card. Or at the very least, minimize your balances as much as possible.
  3. Call your credit card issuer to cancel and confirm that your account balance is $0.
  4. Send a certified letter to the sender of the card to cancel the account. In it, ask them to mail you a letter confirming your $0 balance and closed account status.
  5. Review all three of your credit reports 30-45 days after discharge to make sure (a) the account is reported as closed by the cardholder and (b) your balance is $0.
  6. Claim and report any incorrect information in your reports with all three credit bureaus.

Canceling a credit card will not reduce your credit seniority

you may have heard that cancel a credit card It affects your credit or causes you to “lose credit” because of the importance of the time you had with the account, which harms your credit seniority (which is worth 15% of your score). FICO). That’s not true.

the credit expert John Ulzheimer, confirm that closing a credit card will not remove it from your credit reports. In addition, Ulzheimer states: “As long as the credit card remains on your report, you will continue to get the value of the age of the account in the credit scoring models of the FICO and VantageScore brands. The only way to lose the aging value of the card is if it is removed from your reports.”

conclusion

Don’t close a credit card account without a good reason.. Having lots of credit cards won’t necessarily hurt your credit score significantly if you handle them responsibly. But nevertheless, if you need to cancel a card, do your best to reduce all balances first of your credit card (preferably at $0), so you can minimize or totally avoid any damage to your credit score.

A canceled card will stay on your reports for up to seven years (if negative) or about 10 years (if positive). As long as the account is on your reports, your average credit age will be taken into account. FICO itself confirms that “the FICO score considers the age of open and closed accounts.”

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