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Credit Cards

How Bad Is It To Cancel A Credit Card

By David Krug 8 minute read

If you’re in this circumstance, canceling your credit card isn’t a terrible idea.
You’re not alone if you’re wondering how to cancel a credit card. Experian estimates that the average American has four credit cards. Isn’t it possible that one of these is an unopened credit card? You may be tempted to reduce the number of cards you carry, but you should think twice before making such a drastic change.

Canceling a credit card may have unintended consequences. As a result of this, your credit rating may take some time to restore. It’s possible that canceling a credit card is a wise financial decision in some situations. For those who are considering canceling a credit card, here are some things to keep in mind:

When you cancel a credit card, what happens?

The link between you and the credit card company is severed when you cancel your credit card. A line of credit you were offered by the corporation, as well as all associated perks and privileges will be removed from your possession. Cutting a credit card in half isn’t the only way to cancel it. To cancel your credit card, you’ll often need to complete the following:

  1. Any outstanding debt should be paid in full.
  2. Redeem all of your available prizes.
  3. In order to cancel your credit card, you must first contact your bank.

Debt collectors will be less likely to contact you in the future if your account is clean. You don’t want your reward points, miles, or cash back to go to waste when you close a rewards card. You should expect credit card agents to try to persuade you not to cancel your credit card when you phone them. Your cancellation request may be questioned, and you may be sent to the customer service department for further assistance. If you keep your credit card open, you may be rewarded with discounts or incentives.

You can respectfully inform the customer service agents that you still wish to cancel your card. In the end, they will have to cancel the credit card. The only thing left to do is to destroy any duplicates of the canceled card that you may have.

If you still owe money on a closed credit card account, you’ll have to pay it off and interest will continue to accrue. Late fees may be assessed if payments are not made on time. A charge-off occurs if you fail to make a payment for 180 days. Delinquency will appear on your credit record at that moment, even if you still owe the money. In order to prevent this situation, you should pay off your credit card debt in full before terminating the account or execute an APR-free balance transfer.

How the closure of a credit card affects your credit rating is explained here

Closing a credit card raises questions about the impact on your credit score. If you want to know why your credit score could be damaged, we need a closer look at the components that make up it. While each of the three major credit agencies calculates your FICO score differently, the fundamentals remain the same. Percentages of these criteria make up your Experian credit score:

  • You’ll have a decent payment history (35 percent) if you pay off your debts on schedule. Your credit rating might suffer if you miss a payment.
  • Thirty percent of my available credit. How much credit you’re utilizing as a percentage of your entire credit limit is known as your credit usage ratio (CUR).
  • Basically, how much credit you’re using. Your credit score may suffer if you use more than 30% of your available credit.
  • The length of your credit history (15 percent) will have an impact on your credit score. Lenders view you as a lower risk borrower if you have a longer credit history. You might expect a higher credit score if the average age of your credit is greater.
  • A tenth of a percentage point. If you have an excessive number of recently created credit accounts and hard credit pulls, this might have a negative impact.
  • Ten percent of the credit mix. There are several types of credit accounts, such as credit cards, mortgages, auto loans, and student loans, to name just a few. Having a variety of credit accounts might have a good effect on your credit score.

Some of these crucial elements are impacted when you cancel a credit card. Among other things, your credit use, credit history length, and credit mix will all alter as a result of this. If you have a low credit score, this might have a detrimental influence on your score because it accounts for 55% of it.

When you cancel a credit card, you’re effectively closing a credit line, which might lead to an increase in your credit usage. Your credit utilization rises if your total available credit decreases, but the amount of credit you’re utilizing remains the same. This is how it works:

  • You owe $5,000 on your credit cards, but you have a total credit limit of $20,000 across all of your accounts.
  • This equates to a credit usage rate of 25% ($5,000 / $20,000), or $5,000.
  • Your credit line lowers to $15,000 after you cancel a credit card with a $5,000 credit limit.
  • Credit agencies look for a utilization rate of no more than 33.33 percent, therefore your credit score might be affected.

Even though canceling a high-limit credit card will hurt your credit score, you may not want to do so if it is your oldest account or one with a high credit limit. There are some situations, however, were canceling a credit card is the best option.

5 Times Canceling a Credit Card is a good idea

You’d like not to pay yearly fees any longer.

Perks and advantages of credit cards might be enticing, but many of them are tied to an annual charge. If the yearly charge isn’t worth the perks, you should consider canceling the card. Your credit score may take a blow, but you’ll save money each year as a result.

Check with the card issuer to see if you may lower the credit card before canceling the account. Your credit card is effectively transformed into a new product with new perks as a result. It’s conceivable that you can get a credit card with no annual fee. As a bonus, the credit card company doesn’t shut your account when you switch to a new product. As a result, your credit rating will continue to rise as your credit history grows. If you want to learn more, have a look at our guide to the top no annual fee credit cards.

Consider downgrading from the Chase Sapphire Preferred or Chase Sapphire Reserve to the Chase Freedom or Chase Freedom Unlimited if you realize you don’t travel frequently. You’ll keep your excellent credit card, save money, and keep your good standing with Chase.

You don’t mind if your credit score drops a few points

If you already have a solid credit rating, you may not mind a minor dip in your score. Individuals who pay off many credit cards on a regular basis may be able to cancel one if they so choose or need to. A specific card may not be as valuable to them because they don’t utilize it very often. Their credit score won’t be greatly harmed by canceling the card unless it’s their oldest.

Some people may be less concerned about their credit score for a period of time after getting a new automobile or house loan. When you borrow money, your credit rating is affected, and it may take some time to repair. In the meanwhile, you’ll still have to wait for your credit score to improve before you can cancel a credit card.

You can’t keep from spending

You should get rid of your credit card if you can’t stop spending and don’t know how to manage your debt. Credit cards may be a valuable tool, but they shouldn’t come at the cost of being a slave to debt. As long as you don’t mind taking a blow to your credit score, it’s better. Your credit score can continue to rise if you pay off your current debts in a timely way.

You’re getting a divorce

Joint credit cards are extremely unusual, yet they exist. Credit card account holders with joint accounts are entitled to the same rights and privileges. When a credit card is shared between two people, each person is accountable for the whole balance on the card. This implies that if you and your spouse divorce, you might be held accountable for the credit card debt that you accrued throughout the marriage.

It could be a good idea to deactivate a shared credit card in the event of a divorce or separation. Keeping a credit card account open with someone with who you no longer intend to share financial resources is unnecessary and unnecessary. And if your ex-spouse continues to use the card without making payments, this combination of divorce and debt might have a bad impact on your credit.

You want another card from the same card issuer

The maximum number of credit cards you can hold from a single issuer isn’t disclosed publicly by credit card issuers. Although certain card providers may have unofficial credit card application regulations in place, it is possible.

For example, American Express and HSBC both limit your credit card options to a maximum of five total. If you currently have a few U.S. Bank cards, you may have a harder time getting accepted for more cards. As a result, it may be in your best interest to cancel an existing credit card from the same issuer and apply for a new one from the same company.

Bottom Line

If you’re trying to acquire a decent interest rate on a vehicle loan or if you’re applying for an apartment or utility service, your credit is important. Because of this, it is imperative that you carefully consider any financial decisions you make.

The only time to use a credit card should be if it’s advantageous for you. It is possible to utilize them as a way to develop credit or to pay for necessities. If you’re going to end up in debt and in a financial mess, don’t utilize them. However, in times of financial need, it may still be acceptable to defy credit card guidelines.

There are no hard and fast rules when it comes to canceling your credit card because it is dependent on the specifics of your scenario and your individual financial circumstances. Keeping credit card accounts open to maintain a good credit rating is the best course of action most of the time. However, if you find yourself in any of the aforementioned situations, you may choose to cancel your credit card instead.