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How Does Canceling Your Credit Card Affect Your Credit?

Should You Cancel An Old Credit Card?

• Posted: May 04, 2015 • Updated: February 26, 2016

Reasons to cancel a credit card

Everyone has different reasons for wanting to cancel a credit card. Perhaps you want to avoid the temptation of over spending, or maybe you’re fed up with the customer service? Sometimes people get credit cards to help build their credit, and once they have achieved a successful credit score, those high interest rates aren’t your only option anymore. Sometimes opening a new card is the perfect time to close an old one, especially if you’re using a balance transfer card or your new card has a great sign up bonus. No matter the reason, you need to be aware of the proper way to cancel a credit card and the potential impact it could have on your credit score.

What to consider before canceling

Before reaching for the scissors and destroying your card, you need to know how canceling your credit cards affect your credit score. First things first, if just because you close a credit card doesn’t mean any delinquencies will be removed from your card. Remember the only true way to avoid harming your credit is to make all payments on time.

Now that you know canceling a card will not remove any bruises on your credit report immediately, you also need to know that positive credit data can stay on the credit report indefinitely. Negative credit marks have to be removed from your credit report after 7 years by federal law, but all those good credit decisions you made will stay with you forever. Just another reason to practice good credit card etiquette.  If you want to know more about how negative credit behavior is removed, Experian provides an online list of how it deletes information from its credit reports.

In addition to credit card behavior, potential lenders take into account the amount of credit still open. That means even if you have good credit history, but you cancel a card with a 10,000 credit line, lenders might be less likely to approve you. That's because credit bureaus and lenders are interested in what is known as a balance-to-limit ratio, also known as your utilization ratio, which compares the amount of credit being used to the amount of total credit available to the borrower. The reason lenders look at this it because someone who has been granted large credit lines is a much lower risk customer than someone who only has a $200 credit limit. Banks are smart, they’re not going to give a high risk customer a card with an high limit, and other lenders pay attention to how much other banks are willing to lend you.

So if you cut up your credit card with the highest credit limit, even if it has a 20% interest, you might be hurting your credit.

Is old credit is the best credit?

Another thing to consider before cancelling a credit card is the age of the card. The time an account has been open is as important, as how diligent you’ve been with your payments. That means closing an account you’ve had since you were 20 that has a ridiculously high interest rate, yet you’ve been faithful about paying off, could be very detrimental to your credit, especially if you have a relatively short credit history. We can tell you from personal experience that someone with a worse credit score, but a longer credit history is more likely to get approved by a lender. So don’t close your longest standing credit card.

Does an unused credit card harm your credit score?

Now that you know about the importance of keeping old cards open, it begs the question about using them. What if you do keep your first credit card open, but you don’t use it due to high fees and zero rewards? The short answer is yes. Leaving an active credit card open without ever using it isn’t ideal. It’s not that the inactivity will hurt you, it’s that after a period of inactivity the lender might cancel the card, and then you’re back to the paragraph above. We recommend using your old credit cards every so often. It can be something as simple as a tank of gas, or bag of groceries,  and then paying it off at the end of the month. If you make small purchases every once and while, the lender will no close your card, and you can maintain your credit history.

Once you’ve decided to cancel a credit card

Provided you have considered these issues we’ve discussed and have another credit card you can make charges on, you are ready to cancel your credit card. There are a few last minute tips you should consider when cancelling your credit card:

1. Actually call to cancel the card. Some people think cutting up a card solves all their problems, but your card remains active whether or not it’s whole or in pieces. If you don’t intend to use the card at all cancel it so a thief doesn’t get a hold of the number.

2. Redeem your rewards. Check the rewards balance and redemption procedures on the issuer's website.  If you can transfer your points to your new credit card, try that, otherwise you should try to cash out your points. After all you earned them, you shouldn’t let them vanish when you cancel your card.

3. Pay down your balance in full. When you’re ready to close your card, make sure you pay off the entire balance or transfer it over if that’s your plan. It can be really obnoxious to think you canceled your card and then find out there was a $3 charge that hadn’t processed. We suggest making sure no charged are pending when you pay off the remainder of your balance.

4. Follow Up: After you have called to cancel your credit card, follow up to make sure the account was actually closed. Customer service reps are human, and make mistakes. Just for your own piece of mind, follow up a month after to make sure your card was in fact closed.

Quick Tips:
- Spread out closures over time, don't close all your credit accounts at once
- Keep your oldest account open to preserve credit history length
- Keep cards with high limits open
- Don't close down credit card accounts right before applying for a loan
- If you’re married, hang on to a card from your single days


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