What Happens When You Cancel A Credit Card?

Leah Bourne
July 16, 2018

There are a lot of reasons someone might want to cancel a credit card. But, based on loads of internet advice, the common conception out there is just don’t, it will hurt your credit score too much.

Word to the wise: That advice is only partly true. There are still plenty of reasons that closing a credit card can actually be a good thing and, it should be noted, closed accounts with positive information actually stay on your report for up to 10 years.

The real issue to consider is your credit utilization ratio. In laymans terms, your debt balance(s) in relation to your credit limit(s). By closing a credit card account that you are no longer using, your debt load will stay the same, but your credit limit will decrease, and therefor your credit utilization rate will go up.

That is why so much of the advice centers around telling people not to close their cards, but rather to keep their accounts open and active.

That being said, there are still a few reason to close a credit card. Here are three:

If you have a card with an annual fee that you want to stop using

If you have a credit card with an annual fee that you want to stop using, the first thing you might want to do is to ask your card issuer to waive your annual fee or downgrade your card so it no longer comes with an annual fee. If you don’t get anywhere, think about just canceling, otherwise the card will be costing you money needlessly.

If you have a new card that you don’t use without an annual fee

Simply trying to purge your wallet and simplify your life? Start by getting rid of your newest cards first. You utilization might increase because you cancel a card, but getting rid of your newer cards won’t change the length of your credit history. This isn’t a particularly risky move.

If you have a credit card with bad terms

Have a credit card with a low limit, or high fees–a card that you just want out of your wallet? This card might be OK to cancel. Consider things like how long you’ve had the account open (remember cancelling newer cards is best) and how much it will impact your utilization.

One other thing to keep in mind is that if you are wanting to cancel because the card has a high APR, remember if you are paying it off in full that doesn’t matter to you.

Whatever you do don’t cancel your oldest credit card

You are going to want to do what you can to keep your oldest credit card open in order to retain your credit history. To keep it open and active consider setting up an automatic bill payment from this account.

Feature Image: Twenty20

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