Credit history is a record of the loans you’ve ever applied for, received, and repaid. That’s why closing a credit card has the potential to affect your credit score. Therefore, it is important to understand the consequences of such actions from the very beginning. Closing a card can negatively impact your credit score and change the structure of your credit accounts.
Does Canceling a Credit Card Hurt Your Credit?
As we said, it can happen if you cancel a card. Here is a list of consequences that can cause credit score damage and appear after closing the card:
- Generally, available credit is decreasing.
- This changes the credit mix and impacts the types of credit accounts you have.
- Reduction of the average credit history.
Impact on Credit Utilization Ratio
The credit utilization ratio is the proportion of available credit that you are currently using. To calculate it, the banking system divides the overall credit balance by the total credit limit. Its main role is to highlight your creditworthiness. It also shows how you manage your credit. Credit card issuer and credit scoring models consider a low ratio to be the most positive indicator. After all, it shows your responsible attitude to the finances provided and stability.
Closing a Credit Card Will Affect Your Credit Score
It’s time to learn how closing a credit card can hurt your credit score. In most cases, such an idea to close an account is considered as a good option. However, there are potential threats that can impact your credit utilization ratio and the average age of your credit. It is known that the longer you use credit, the better it is for your credit score. Therefore, if you close the account, you can reduce your average and potentially lower your credit score.
Impact on Length of Credit History
The longer your credit history is, the better it is for your credit score. This is because it contains the most records of your financial behavior. Therefore, when you decide to cancel your credit card, it can damage your credit score and reduce the average age of your accounts. But usually, all the data is in your credit report, and keep the credit data for 10 years from the date of your last activity.
Loss of Benefits
The way to cancel a credit is simple and fast. However, this way, you can lose various benefits and rewards associated with the balance on the card. For example, a credit card gives you access to travel insurance, purchase protection, and much more. If you use the card as a way to accumulate points in an airline or hotel loyalty program, these rewards will not disappear. You’ll be given a certain amount of time, and you can still use your rewards even when the total available credit is gone.
When Should I Close My Credit Card?
As good an option as it is, after three credits you realize that it carries with it certain obligations. That’s why many people think about how to cancel even the best credit cards. There are some of the most prominent reasons why people might want to cancel their preferences. Below, we’ll look at them in more detail.
High Annual Fees or Poor Customer Service
This is one of the most talked about reasons to close an account. No one likes to overpay, so a high annual fee is not a pleasant experience at all. In this case, you can still consider switching to another credit card from the same company. However, if this is coupled with poor customer service, then they are not worthy of your trust. Below, we have prepared a table that shows real examples of high fees.
|American Express Platinum
|Chase Sapphire Reserve
|Capital One Venture X
You’ve Graduated to a Permanent Card
If you switched to a permanent or unsecured credit card, then you should also think about the need to close the old version. After all, such cards are considered more favorable and do not require a deposit as collateral. You can make such a transition when you have high credit. Also, make sure your new option has a lower interest rate and better rewards.
Divorce or Separation from a Spouse
Many couples share financial obligations such as credit cards in half. However, if your partner makes purchases and doesn’t pay off the debt on time, it can also affect your score. You can ask the credit card company to remove yourself or your spouse from the list of authorized users. However, you should first pay off any balance on the card. For more details on your balances on your credit and the consequences, you should consult a lawyer.
Alternatives to Canceling a Credit Card
Of course, if you don’t want to cancel your account or hurt your score, you can look for alternatives. Let’s take a look at some of the available options together below.
Call and Ask for Better Terms
To keep your credit, you can call your credit company that provided it to you. During the conversation, you can try to negotiate for better credit terms. Never give up on your goal, the worst thing you can hear is no. However, you may get lucky and be able to help your credit situation. In most cases, financial institutions are always cooperative.
Build Your Score and Then Switch Cards
Some users don’t like their current card but are afraid that canceling their credit card can impact their loan rating. In this case, you can try to work on improving credit scores and change it to another option. To do this, you need to keep your account low and manage it responsibly. Over time, this will impact your score, and you will be able to apply for a more desirable option.
Try Different Ways to Avoid Overspending
In most cases, the problem is related to excessive spending, so the best advice is to break this habit. Alternatively, you can set a certain budget and strictly stick to it when having your credit card open. You can find your way to tame this beast. The main thing to remember is that it will affect your overall credit utilization and improve your life.
Downgrade to a No-Fee Card
Many companies produce similar cards but without an annual fee. Therefore, such a switch can be a good alternative. This will allow you not only to keep your loan record but also to avoid fees. You should consult with your financial services company and weigh all the pros and cons.
How to Close Credit Cards Account Safely?
A credit card can increase your credit and your interest in shopping, so if you decide to get rid of it, there’s nothing wrong with that. However, to do so safely, there are a few steps to follow. Here’s a structure to follow to make sure you do it right:
- Step 1: Pay off your full credit card balance.
- Step 2: Cancel any recurring payments.
- Step 3: Pay off all of your other credit cards before the statement closing date on those accounts.
- Step 4: Call the card issuer to close your account
- Step 5: Make sure the card issuer updates the account to show it is closed with no outstanding balance.
How Long Does a Closed Credit Card Account Stay on Your Credit Report?
A closed credit card account can remain on your credit report for varying periods. It all depends on how positively or negatively your account could be evaluated. A factor in your credit score is based on how timely you pay your bills and the amount of credit owed. For example, if it all happened according to the approved dates, you have nothing to worry about. Then, such data will be stored for up to 10 years. And if your account has been recognized as overdue, then this time is shortened.
How to Minimize the Negative Effects of Closing a Credit Card
To mitigate potential negative impacts on your credit score when closing a credit card, opt for closing cards with shorter histories or lower credit limits. Closing an older card or one with a substantial credit limit may have a more pronounced effect on your score.
Additionally, it is crucial to settle any outstanding balances on a card before closing it. Leaving unpaid balances can adversely affect your credit utilization ratio, potentially leading to a decrease in your credit rating. Clearing any outstanding balances ensures that your higher credit utilization ratio stays favorable, minimizing the impact on your credit score.
Will closing a credit card lower my credit score?
Yes, closing a credit card can lower your score. This is primarily due to a potential increase in your credit utilization ratio. However, it would be best to consult with your bank about your situation, as everyone’s situation is different.
How much will my credit score be affected by closing a credit card?
It depends on several factors. A credit card account might tell a lot about its users. Here, it is important to consider the total available credit, the balance on the card, and the utilization rate.
Will closing a credit card remove it from my credit report?
No, ending credit activity will not immediately remove it from the report. Don’t worry, it will be available for a long time.
Does closing a credit card affect my average account age?
Your card may affect such an important indicator. However, closed accounts continue to age until they disappear from your report after a maximum of 10 years.
What should I do if I want to close a credit card account?
First, you need to deal with the balance on your card. You need to remove it from your credit card, and then you can proceed with terminating the account. You will need to contact the issuer with this request. Be prepared that he will ask you about the reason and offer ways to increase your credit utilization ratio to keep you as their customer.