Impact of Canceling Unwanted Credit Cards on Your Credit Score

Sometimes we end up with unwanted credit cards that we applied for without giving much thought. But getting rid of such cards is not such a simple decision as it has a bearing on your credit score.

People end up with these cards because they apply for many cards at the same time thinking that they will be rejected for a few or it will be quite sometime before they will be approved for them. They are also under the impression that they will have plenty of time later to decide if they really want the card or not. But that really is not the case, as it becomes tricky to get rid of the card without affecting your credit score negatively.

If it is just one or two unwanted cards with small credit lines, then you need not worry. But if you have applied for quite a few credit cards, which have been approved, then your credit score can decrease significantly if you cancel them.

If you cancel a credit card quickly, then you can save your credit score from getting hurt too much. Many of the credit card issuers do not even report a credit card that is cancelled soon after being issued. If a card account does not appear on your credit report, then your credit score will remain safe.

However, the multiple inquiries for the credit cards you applied for will remain on your credit report for about two years. You cannot reverse the harm they will do to your score by cancelling the card, but it is nothing irreparable and will be nullified in another year or so. You will lose about five points for each inquiry from your credit score. But the harm done by a reported account will be much more. If your account is reported and you cancel the card, then it will remain on your report for a maximum of ten years.

The cancellation of a credit card drives your score down by decreasing your credit utilization ratio. This is because you are canceling a card with zero balance and decreasing your available credit line, which had increased by the issue of the card.

You should think twice before canceling an unwanted card. A credit card account will not harm your score if it is inactive. Opening and canceling accounts frequently are bound to have temporary, but at times significant effects on your credit score. So unless there is a compelling reason to do close an account, I would suggest that you keep the new card for emergencies.

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