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MoneyWatch: Managing Your Money
Updated on: September 18, 2022 / 7:33 PM / CBS News Are you thinking about canceling your credit card? Maybe you don't want to pay the annual fee, or you're not using the rewards program enough to benefit. While there are plenty of good reasons to cancel your credit card, you should understand how closing your account could negatively affect your credit score. There are a series of factors that can hurt your credit score and you want to make sure you don't add to the list. But if you do currently have a poor score (or just not enough credit history) you can start improving it today. Credit repair experts are ready to assist you. Before you cut up your card, however, familiarize yourself with the consequences of closing your account and the steps you should take to close it the right way. Does closing a credit card account hurt your credit score?Canceling your credit card can negatively impact your credit score in two main ways: By lowering your credit utilization ratioOne figure that accounts for 30% of your credit score is your credit utilization ratio. This is the amount of credit you use compared to your available credit. So, if you carry a $3,000 total balance across all your credit cards and your total available credit is $10,000, your credit utilization ratio is 30% (3,000/10,000 = 30). Credit experts recommend keeping your credit utilization ratio at 30% or below (the lower, the better). In this example, if you close a credit card with a $4,000 credit limit, your total available credit would fall to $6,000 ($10,000-$4,000 = $6,000). With that same $3,000 balance, your credit utilization rate rises dramatically to 50%, which could damage your credit score. By reducing the average age of your accountsAnother critical factor in your credit score is the average age of your accounts. The longer you've been managing credit, the better it is for your credit score. Your score considers the average age of all your accounts, so closing your older accounts could impact your score more than a new account would. If your credit utilization ratio is poor or if your average age of accounts is limited, your credit score could suffer. If either of these applies to you it may be worth speaking with an expert who can help improve your score. When closing your credit card makes senseWhile closing your credit card could negatively affect your credit score, there are instances where it may make sense.
Alternatives to canceling your credit cardIf you want to avoid canceling a credit card and potentially damaging your credit, consider the following alternatives to help you meet your objectives.
How to cancel credit cards without hurting your creditBefore you cancel your credit card, it's important to consider the potential damage to your credit score. Why is that important? Because good credit can be the deciding factor that determines whether you can get a mortgage, car loan or student loan or other forms of credit. By contrast, bad credit makes it challenging to get approved for such products, and the cost of borrowing is typically higher than for those with good credit. Nevertheless, if you've decided to cancel your card, here are the steps to complete the process.
Should you cancel your credit card?The decision on whether to cancel your credit card is one that only you can make after weighing the advantages and disadvantages. If you're worried about your credit score taking a temporary hit, consider alternatives like negotiating for better terms or switching to another credit card from your issuer. However, if the temptation to overspend with your credit card is too great, canceling the card may make sense. And if you've already hurt your score by canceling a card prematurely? You have options to help rebuild it. Get started with the credit repair process now. Thanks for reading CBS NEWS. Create your free account or log in Please enter email address to continue Please enter valid email address to continue Is it better to cancel unused credit cards or keep them?In general, it's best to keep unused credit cards open so that you benefit from a longer average credit history and a larger amount of available credit. Credit scoring models reward you for having long-standing credit accounts, and for using only a small portion of your credit limit.
How do I get rid of a credit card without hurting my credit?Consider the Timing and Impact on Your Credit. When you close a credit card, your credit score may be affected. ... . Pay Down the Balance. ... . Remember to Redeem Any Rewards. ... . Contact Your Bank to Cancel. ... . Don't Accept Their Offers. ... . Write a Letter for Your Records. ... . Check Your Credit Report to Ensure the Account Is Closed.. |