Credit cards are an essential part of contemporary money management since they let users make purchases and establish credit histories. But many consumers are concerned about how cancelling a credit card might affect their credit score. In this blog article, we’ll examine the connection between cancelling a credit card and how it affects your credit score, debunking popular misconceptions and illuminating crucial elements to take into account.
How closing credit card affects credit score:
You should constantly assess the benefits and drawbacks of your actions on your credit score before terminating a credit card. Before cancelling your credit card, keep the following things in mind:
- You should constantly assess the benefits and drawbacks of your actions on your credit score before terminating a credit card. Before cancelling your credit card, keep the following things in mind:
- Your available credit limit will decrease if you close your credit card. By using a larger portion of your available credit, it will further raise your credit utilization ratio, which can indicate risk to lenders. According to experts, you should maintain your credit utilization rate under 30%.
- As a general rule, it is preferable to have a lower credit utilisation rate. By dividing the total of all your credit card balances by the total of all your credit limits, you may determine your credit utilization ratio. The resulting percentage is your utilization ratio.
- Closing a credit card can also lower the average age of the accounts on your credit report, which can affect your credit score.
- One of the key elements that determines your credit score is the age of your accounts.
- Individuals with a longer payment history receive extra credit points from credit bureaus.
- If you cancelled a credit card with missing payments, the information will stay on your credit record for five to seven years.
- While your credit scores may drop right away after closing a credit card, by paying your bills on time, you can raise them again a few months later.
- Your credit score will eventually rise if you terminated an account without accruing any new debt.
- If you intend to apply for more credit cards or loans in the next months, you should refrain from terminating your current credit card.
You can also check more on your banks official websites like:
When you should cancel your credit card?
Several scenarios may warrant cancelling a credit card, including:
- If your credit card has a high annual cost but little extras, consider another card.
- If you wish to carry a debt on your credit card yet the interest rate is excessive
- If you are unable to manage your bills and the temptation to live beyond your means is increased by holding credit cards,
- If you want to receive a standard or rewards card, you can close your secured or student card.
However, in the following situations, you should keep your credit card open:
- On your credit record, it is one of the oldest accounts.
- Closing a credit card will further diminish your credit history if you have fewer credit accounts, which will make it more difficult for you to obtain credit in the future.
- If you are terminating your credit card because you rarely use it
How to close a credit card without damaging your credit score?
Following are some ideas to keep in mind if you have decided to close your credit card account in order to avoid any future problems:
- Before you cancel your credit card, pay off all outstanding bills.
- If you have a rewards credit card, redeem all unredeemed benefits.
- To prevent missing payments, if you have any auto-payments set up on this credit card, suspend them or switch them to another method.
- Inform your credit card company’s customer service that you wish to close your account and request that they confirm in writing that the account was closed at your request.
- Send a confirmation message to your credit card company to let them know you’ve cancelled.
- Your name, phone number, address, credit card account number, and other information should be included in the letter as well.
- To make it more difficult for a potential thief to locate and piece together your credit card information, shred your credit card after it has been closed and place the fragments of it in several garbage bags.
Alternative to closing a credit card:
Here are some suggestions if you want to avoid cancelling or closing your credit card and are looking for other solutions to the problems that were motivating you to do so:
- Call your issuer to ask about lowering or waiving the annual fee if you were considering cancelling your credit card due to it. To keep their clients, some businesses could be prepared to take this step.
- Put the card in a safe place or even pause your credit card account for a few months if you are concerned about overspending if you decide to keep it.
- You can keep a credit card open if you rarely use it by adding a little monthly membership to your preferred magazine or streaming service.
- However, be sure to remember the credit card payment due date and make payments on time.
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I am a engineering student studying at Nimra college of engineering and technology(NCET)