CANCELLING CREDIT CARDS

If you are considering cancelling a credit card of two, reevaluate your situation before you do. Whether you use or do not use these credit cards, closing them out may do more damage than good. Why? Credit cards are one of the most impacting aspects of your credit report and how your credit score is computed. Therefore closing out the wrong account can equate to lowered/damaged credit score and rating.

The Influence of Credit Cards on Credit Scores
Your credit cards are going to impact your credit score several ways. 30% of your credit score is how you utilize your available credit. This means how much credit card balance you encompass compared to your available limits. If you carry high balances you credit score is going to go down. So, if you have two credit cards, and one is maxed out and the other is not being used...DO NOT close the card that is not being used. Why? Because if you do, you lose all of that credit limit on your total listed available credit limit on your credit report. For example, one credit card has a limit of $5000 and your balance is $4500 and another card has a limit of $7500 and you have not used any of that limit. Your total credit limit is $12,500. But if you close out the the card you are not using, your limit drops to $5000, of which $4500 is being used.

15% of your credit score is how long you have had your credit. So, the longer/older your credit cards, the higher your credit score is going to be. Therefore, closing a credit card account will eliminate that aged credit from your credit report and score.

The amount of varying credit you have is 10% of your credit score. That means having different types of credit; credit cards, auto loans, mortgages, etc. If you cancel the one credit card account you have, you may reduce your credit score.

Why Closing a Credit Card Account May Be a BAD Idea
If you think that closing a credit card account that exhibits poor account activity will fix that problem, you are wrong. Regardless if the account is closed or not, negative account activity will stay on your credit report and effect your score for seven years. So, there is really no benefit to closing an account that is in bad standing.

Why Closing a Credit Card Account May Be a GOOD Idea
As mentioned above, there is really no benefit to closing a credit card account. However, there may be some personal advantage. For instance, if you have a card with a very high interest rate, you should look to eliminate that card and replace it with one that has a lower rate. However, be certain that the card you are closing is not your oldest credit card and that it does not have any balance. If it is an old card, keep the account open and use the card once every other month or so and pay the balance in full when it is owed.

If you are one that has a hard time resisting temptation by making impulse purchases, you may want to limit yourself to one or even no credit cards. Having no credit cards may be better for you long-term then having lots of debt. In fact, the more debt you have, the lower your credit score is going to be.

The Proper Way to Cancelling a Credit Card
Before you cut your card up, make sure you contact your credit card company and let them know you'll be closing the account out. A good idea would be request in writing confirmation that the account has been closed. Once you have completed this process, get a free copy of your credit scores for your records showing that the account has been closed.

How Are Credit Scores are Computed?
Paying Off Credit Card Debt

History of Credit Cards
Types of Credit Cards
Applying for a Credit Card - Read the Fine Print!
Use Credit Cards Wisely
Application Tips for People with Bad Credit
 

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