Many reasons push people to cancel their credit cards. For some, it’s because they’re tired of paying the annual fee. For others, it’s because they no longer have use for the credit card or want to upgrade to a card with a better rewards program.
But don’t cancel it just yet because doing so will indeed hurt your credit score. This is especially true if it’s an account in good standing and has been open for several years.
But what’s a credit score? It’s a number between 300 and 850 that predicts how likely you are to pay back on time. Companies use the scoring model to create your credit score from the information in your credit report.
Effects of Canceling Your Credit Card on Your Credit Score
Canceling your credit card can affect your credit score for various reasons.
When you cancel your credit card, you’ll lose the obtainable credit limit on your account. It makes your credit utilization jump up, which is a sign of risk to lenders. That’s because it shows them that you’re using a higher amount of your available credit.
Another reason why canceling your credit card can affect your credit score is it lowers the average age of accounts on your credit report. When creating your credit score, the age of your account is taken into consideration. A longer payment history bolsters your credit score.
This shouldn’t worry you. Because accounts canceled in good standing can stay on your credit report for as long as 10 years. The account’s age is also factored into your credit scores during that period. Canceled accounts with missed payments remain on your credit report for seven years.
Worried about the last minute aftermath of canceling your credit card. Well, fret not. Chunk Finance is on a mission to help you manage your finances in a better way. They have their own budget tracker, debt payment calculator and planner. Chunk Finance helps to alleviate your debts by better planning, tracking and management.
Expect your credit score to decrease after canceling your credit card. But continuous timely payments will cause your credit score to rebound in a few months. It becomes clear that you canceled your account and didn’t take on new debt.
Rather than wait, you can hire a credit repair company to help you build your credit score. Getting the best credit repair quotes will help you save money.
There are several cheap credit repair services in the market. The cost is a factor that must be considered when deciding which credit repair service is best for you. Thus, avoid gauging a credit repair service solely based on the cost.
Always trust your sensitive financial information with a trustworthy top-rated credit repair company. Some services will expect you to pay upfront. Some will promise to get rid of all the negative items on your credit report. All those are red flags.
Most affordable credit repair services charge a monthly fee for the services offered. If you feel unsatisfied with the services, you can cancel your account and pay nothing.
Note that credit repair services will help you achieve a perfect credit score. That gets done by removing inaccuracies from your report. So avoid companies promising to remove legitimate negative entries on your credit report.
Understandable Reasons to Cancel Your Credit Card
Canceling a credit card is a bad idea in general but there are situations when doing so is in your best interest. Here are some of those situations.
1. If You’re Charged a High Annual Fee
Cancellation is a good idea if the card issuer charges you a high annual fee for a card you don’t use. But if the benefits you receive outweigh the charged fee, the card might be worth the charges. Some of the benefits received could be travel credits and perks.
Before canceling your credit card, call the card issuer and ask for the annual fee to get waived. Make sure to let them know that you’re considering canceling the account.
2. A Lot of Temptations
The temptation to use a credit card is too much for some people to resist. And as such, this is a valid reason for such people to cancel their credit cards.
But, you can also stop overspending without sacrificing your credit score. You can, for instance, remove the cards from your wallet and store them in a safe place. Not having the cards readily available will make it easier to resist the temptation.
It’s best to cancel a joint credit card account when you divorce or separate from your partner. That’s because as a joint account holder, you’ll be responsible for any charges made on the account. That can happen when an angry ex decides to run up excessive charges on the account out of spite.
The divorce decree can say that your ex is responsible for the debt. But it won’t release you from your obligation to your lender.
Alternatives to Canceling Your Credit Card
If you’re considering canceling the account due to the fees, call the issuer and ask if they have fee-free cards. This might enable you to switch to another credit card from the same issuer. That way, you get to keep your payment history.
You can also do that for cards that are no longer a good fit. You may have wanted an interest-free period when you opened a card. But now you prefer a travel rewards card. Find out if the issuer provides such a card and if you qualify for it.
If the card you want to cancel doesn’t have competitive terms, consider using it occasionally. This will keep the issuer from closing it. Keeping the card active and paid for monthly will raise your credit score. In return, you become eligible for a new credit card offering.
Canceling a Credit Card Safely
There are steps credit card holders must follow to safely cancel their cards. But you’ll be better off researching first to determine if that’s the best step to take. Here are the steps:
Step one: Redeem unused rewards on the credit cards before calling to cancel.
Step two: Pay your credit card balance in full and confirm with your issuer that your balance is $0.
Step three: Pay off all the other accounts before the statement closing date on the cards. Consider using a consolidated loan to lower your utilization rates. But that’s only if you can’t afford to pay off the debts on the card.
Step four: Mail the card issuer a certified letter to cancel the credit card. In the letter, request them to mail you a written confirmation of your $0 balance. They should also send you a written confirmation of the canceled account status.
Step five: Wait until 30-45 days later and check to confirm that the account was indeed closed. Also, confirm that your balance is $0.
Step six: Do a follow-up and dispute any incorrect information on your report. You can follow up on the disputes with the credit bureaus.
Step seven: After confirming that your card has been safely closed, dispose of your card. Shred it first and ensure that the sequence of numbers is unrecognizable.
Canceling your credit card is a smart idea if it costs you a lot of money. There are a lot of reasons why canceling it is the best action to take. It’s also the right decision to make if keeping it active hurts your credit score in any way. At the end of the day, you have to do what’s best for you.
But if you must cancel your card, do it in a way that minimizes the damage to your credit file. This will help you avoid the consequences of canceling it in the long run. Weighing the pros and cons will enable you to make the best choice for your financial life.