A common question asked by many people with credit cards or seeking credit card repair is whether or not closing a credit card will hurt their credit score. Credit scores are essential for numerous reasons, including renting an apartment or taking out a loan. So, it is crucial to understand the impact canceling a credit card can have on your credit. Let’s look at when it makes sense to close a credit card, when it is better to keep it open, and how to close it safely without damaging your credit score.
Understanding When Closing a Credit Card Can Be Beneficial
If you have multiple cards with high balances and are having trouble keeping up with payments, it might be beneficial to cancel one to reduce your financial burden. Another situation where canceling your card may make sense is if the annual fee is too expensive for you to pay yearly. If you do not think you would get enough benefits from the card to justify paying the annual fee, it might be worth considering canceling the card to save money. Finally, it may be worth closing the account if you want to get rid of a secured or student card to switch to an option with more lucrative rewards.
When Retaining the Card Is Best
On the other hand, there are some cases where keeping the card open could benefit your overall financial situation more than canceling it would. For example, if you have had the card open for several years and it has helped build your average age of accounts (AAoA), closing it could cause harm since AAoA is an important factor that lenders consider when making decisions about giving out loans or lines of credit. Secondly, if it is your only card, keeping it would be the better option to prevent your credit profile from becoming too thin. Lastly, if the only motivation you have to close the account is that you do not use it often, it is better to hold on to it. Having more available lines of credit can lend to credit card repair and also help improve your utilization ratio, positively impacting your score.
How To Safely Shut Down a Credit Card
After weighing all these factors, if you decide that closing one of your cards is still the best option for improving your financial situation, you should take specific steps to close the account safely without negatively affecting your score.
- If you find an outstanding balance, connect with your credit card issuer and discuss the best payment method. Whenever feasible, try to settle this debt before canceling the account.
- Do not let your hard-earned rewards go to waste! If you have a rewards credit card, make sure you redeem all outstanding points before they expire.
- Reach out to customer service and inform them that you would like to close your account, requesting confirmation of the closure in written form. In addition, kindly ask that they make a note confirming the account has been closed due to your specific request.
- If your credit card is linked to any subscriptions or recurring payments, such as utility bills or streaming services, make sure to log in and switch the payment information so you do not miss any future payments.
- Make sure to alert any authorized users on your credit card account that you are shutting the account down and request that they discard their card correctly.
- Make sure to discard your credit card correctly as well. If you have a suitable shredder, it is the best option for securely destroying the card and making it impossible for someone else to acquire personal information from it. However, if that is not possible, cut up all pieces of the card separately and dispose of them in different trash bags throughout your house – this way, no one will be able to connect any dots using your data.
Canceling a credit card can positively and negatively affect one’s overall financial health, depending on circumstances and goals. That being said, if someone decides that closing a particular account is what they want or need, then taking these precautions will help ensure everything goes as smoothly as possible while protecting their financial standing in the future. With this valuable data, anyone pondering the closure of a credit card can decide what action will lead to ideal personal financial well-being moving forward.