Does Closing a Credit Card Hurt Your Score?

There are many reasons you might want to cancel a credit card. You might be too tempted to overspend, or you’re not using your card enough to justify the annual fees. Does canceling a credit card hurt your overall credit? It can. While having too many credit cards can lower your credit score, so can closing a credit card. Here’s why.

Closing a Credit Card Can Impact Your Credit Utilization Ratio

Your credit utilization ratio is the amount of credit you’re using divided by the amount of credit you have available. You want to keep that percentage low – under 30% according to most experts. When you close a credit card, your ratio jumps up. Why? You no longer have the available credit from the card you just canceled, so the amount of credit you’re using on your other cards takes up a bigger amount of your total available credit.

Closing a Credit Card Causes Your Credit History to Drop

Canceling a newer credit card may not have much of an influence on your credit score but canceling a card you’ve had a while might. With credit cards, newer isn’t necessarily better. The credit cards you’ve had longer help increase the average age of your accounts, which boosts your credit score. The opposite is true, too. When you close a credit card, the average age of your accounts goes down, which can lower your credit score.

Should I Close My Credit Card?

Now that you know how your credit score could be impacted, you might reconsider whether you should close your card or not. Below are some options to canceling a credit card that won’t have the same effects on your credit score.

• ●Downgrade Your Credit Card. Reduce the amount of annual fees you’re paying by downgrading your credit card instead of canceling it. With this option, you won’t impact your credit utilization ratio or average age of accounts, but you’ll also get fewer perks with a lesser card.
• ●Request A Lower Interest Rate. If high interest is draining your savings and hurting your credit score, try asking for a lower interest rate from your credit card company. The worst that can happen is they say no.
• ●Use It for Recurring Bills. Instead of canceling your card because you don’t use it, think about putting a regular expense, like your electric bill, on it to keep it from becoming inactive. Make sure to pay it off regularly to avoid unwanted interest charges.

How to Close a Credit Card

Though it may have consequences, sometimes canceling a credit card is the right decision. If you still want to cancel your credit card, here are the steps you’ll need to take.

1. Start by paying off your balance and redeeming any rewards. Even if you cancel a card with a balance on it, you’ll still be responsible for paying off the debt.
2. Call the credit card company to start the cancellation process. Even after you cancel over the phone, ask for a written follow-up letter confirming the cancellation.
3. It can take a few weeks, or in some cases, even a few months to show up on your credit report. Once you’ve confirmed the account is closed, cut up your card to keep anyone else from trying to use it.

Keep Your Credit Score on Track

Keeping a good credit score is important and deciding whether to cancel cards is a process. Sudden financial emergencies can always happen though that may cause you to fall behind on your credit card payments you do have. That’s where LendNation can help. If you close a credit card or suddenly find yourself in a financial emergency, LendNation can help. LendNation offers flexible cash solutions, like payday loans online with instant approval. You can apply for a loan online in minutes or stop by one of our locations.

Resources:

• ●https://www.lendnation.com/blog/article/6-ways-your-credit-score-can-drop
• ●https://www.experian.com/blogs/ask-experian/is-it-better-to-cancel-unused-credit-cards-or-keep-them/
• ●https://www.investopedia.com/how-to-cancel-a-credit-card-4590033#toc-how-does-closing-a-credit-card-affect-your-credit-score
• ●https://www.forbes.com/advisor/credit-cards/does-closing-a-credit-card-hurt-your-credit-score/
• ●https://www.lendnation.com/blog/article/5-ways-to-improve-your-credit-score