There are many reasons why you may want to cancel your credit card. It could be because you are paying unreasonably high interest rates on your card or you feel that you are better off without it. Another common reason why people want to cancel their credit card is because the card is lulling you into a false sense of security and you are unable to control your spending.
Whatever be the reason, there are few considerations that you should make before going ahead and canceling the card for good.
If you have made up your mind to cancel your card, you must weigh the pros and cons of your decision before you execute your plan. It is of course important that you pay up the entire amount on the credit card before you close it. So, no matter how large or small is your debt on the card, you are eventually going to have to clear it and settle the dues before you can leave that card behind forever.
Also, you should know that canceling a card can affect your credit history negatively, and in turn, affect the way a potential lender looks at you. For example, say you are the owner of three credit cards that you have had for the past two years and one nine-year old card that you haven’t used recently. Do not make the mistake of canceling the nine-year card, as this will shorten your credit history and affect your credit score/FICO score.
Your credit utilization is another important factor that affects your FICO score. Credit utilization is a measure of the amount of available credit that is being used. The general rule is that lower credit utilization improves your credit score and anything greater than 30% will hurt it. So if you want to close your credit card, you will have to consider how much effect will that have on your credit utilization ratio.
If it is one of your only two or three cards or has a big credit limit attached to it, then canceling your card would negatively affect your credit score. But if it’s a low credit limit card, then you can cancel it without fearing any major impact on your credit score.
If you are canceling a card because you have a bad history associated with it, remember that your account history will remain on the credit report for seven years and you cannot escape its impact on your credit score. It is always wise to keep your spending in check and minimize you credit usage to stay safe from such situations.
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