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
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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