How Closing a Credit Card will Affect your Credit Score?

Canceling a credit card is easy, and you should know its ins and outs. So, when should you cancel your credit card? Will canceling a credit card affect your credit score? You might want to cancel your credit card for several reasons. You might like to cancel it because you are tired of paying the fee annually, or you might want to upgrade or not have any use for it. Closing a credit card can potentially hurt your credit score. Ensure you cancel it quickly. 

Also Read: These are the best apps to manage your credit cards.

How Closing a Credit Card will Affect your Credit Score?

Are you planning to close your credit card? Weighing the pros and cons of canceling a credit card is a good idea before closing it. Remember these points: 

• Your credit limit reduces once you cancel your credit card. 
• Your credit utilisation ratio also decreases, leading lenders to believe you are risky. It is best to keep the credit utilisation ratio less than 30%. A lower credit utilisation ratio is better. 
• Canceling a credit card affects the credit score. It reduces the average account age on the credit report. Account age is an important factor affecting your credit score. You will receive a higher credit if your payment history is longer. Missed payments stay on the credit report for 5–7 years. 
• You can boost your credit score by making timely payments. 

When Should you Cancel your Credit Card?

Here are a few reasons for cancelling your credit card: 

• Your credit card offers fewer benefits and charges a high annual fee.
• Your credit card charges a high interest rate.
• You cannot manage to have credit cards and debt.

Can you Cancel a Credit Card Without Hurting your Credit Score?

Once you decide to cancel your credit card, you must follow these tips to avoid any issues. 

• Ensure paying off any outstanding balance before you cancel your credit card. 
• Remember to redeem any outstanding rewards. 
• Stop or move your auto-payments if you have set up any to avoid missing out on payments. 
• Inform your credit card issuer about your decision and get the cancellation confirmation in writing.
• Destroy your credit card upon closure and throw the pieces in different trash bags to ensure it is not easy to figure out your details. 

Also Read: How do credit card companies make money?

What are the Alternatives to Closing a Credit Card?

You can fix the issues that led you to want to cancel your credit card. Follow these tips and do away with the need to cancel your credit card: 

• If the cancellation was due to the annual fees, you could ask your credit card issuer to lower the fee. Your company may entertain this request as they want to keep their customer. 
• If overspending is an issue, store your credit card somewhere safe or pause it for some time. 
• If you have no use for a credit card, keep it active by subscribing to a monthly magazine to keep it open. However, remember to pay the dues timely.