Does Closing A Credit Card Hurt Your Credit Score? - Coast Tradelines

Jun 15

Does Closing A Credit Card Hurt Your Credit Score?

Are you wondering whether the closing of a credit line will hurt you credit scores?

Your credit score is vital and you want to make sure you keep it as high as you can. This is why it's crucial to understand the risks of closing a accounts with credit cards. It's tempting to cancel your credit card if you don't use it often or if it has a higher interest rate. But before you do, consider the consequences. A credit card that is closed can harm your credit score, making it difficult to secure loans or mortgages at a later date.

Don't shut down your credit cards without fully understanding the risk! Keep reading. As we discuss in this blog post we will examine the effect of closing your charge card for credit on your credit. We will also offer guidelines on how you can minimize the harm.

Table of Contents

How Does Closing A Credit Card Affect Your Credit Score?

The effect on a closed credit card depends on the number of credit accounts you have and how accountable you are to making use of the accounts. Understanding how credit scores function can help you comprehend the consequences of closing your credit account.

Two of the most important consequences of closing a credit card account are:

Increased Credit Utilization Ratio

Closing a credit card with the highest credit limit may result in the greatest harm. If you're not sure that your credit utilization rate is 30 percent of your FICO credit score. The credit utilization ratio represents the amount of debt that you have as compared to your credit limit. For instance, if have a balance of $500 on a credit card that has a $2000 limit, your rate of utilization is 25. This is within the accepted limits.

When you cancel a card in this way, you will lose credit, increasing your utilization ratio, and decreasing you credit score. If you are looking to get a high credit score experts suggest maintaining at least a 30 percent credit utilization ratio of less than. Account-holders with the highest credit scores typically use less than 10 percent of their credit. It is worth noting that a high credit utilization ratio is a sign that you're taking advantage of more credit than you should. This could be a red flag for lenders regarding your creditworthiness.

Reduced Credit History

When it comes to credit, the more old your credit card is, more credit you will score. Age of credit cards could have a significant impact on your score on credit. Although not as significantly as your credit utilization ratio however, it can affect.

FICO credit scoring takes into account the credit score of your previous. It contributes 15 percent to your score. However, it's crucial to understand closing credit card account aren't likely to immediately affect or affect your FICO credit rating. In most cases, your shut credit account (positive ones) will continue to contribute toward your credit rating for at least 10 years. On the other hand, credit card negative accounts could require up to seven years before credit bureaus erase those from credit records.

When Does Keeping A Credit Card Makes Sense?

Does cancelling your credit card impact your credit? It all depends on the situation with your credit. But if you want to stop using your card, it's not necessarily mean that it's the most beneficial option, particularly when you're working to improve the credit rating. There are a few scenarios where keeping your credit card is a wiser decision. It's the case for:

Credit cards are the oldest credit card you have to your credit score. Remember that the longer the card is, the better it can be for your credit rating.
You lack an open account with a credit card. Having a thin credit profile can make it difficult to obtain new credit in the future.
Your credit score is that is near the top of the range for good credit. Incorrectly handling your credit can bring you back to Fair credit.
You've got too many outstanding accounts on your card. The closing of one card can reduce the amount of credit you have available, which could be detrimental for your utilization rate of credit.
The only reason you have to stop using it is that you don't make use of it frequently. Not using the card regularly is probably the worst excuse to ever use. Avoid the danger of a good credit score with such a ridiculous excuse. The fact that you don't use it often is not enough to excuse you from dropping it. It is possible that it will come to a point where you'll find yourself using more frequently than you think.
You're looking to get rid of any negative activity. The closure of your credit card account is not the best way to prevent having a bad experience. It is essential to be aware that closing your account now won't affect the credit score. The elimination of credit card transactions off your credit report can take some time.

When Should I Close My Credit Card?

There's a possibility of credit damage when closing a card account. However, there are certain situations when it is appropriate to get rid of the card can be beneficial. Below are a few reasons for why cancelling your credit card makes sense:

High Annual Fee

If the credit card company has high annual charges for the card you don't use, closing the account is the best choice. There are credit card companies offering benefits and perks that surpass the annual fee. In this case, retaining your card may be worth it.

High-Interest Rate

Some credit cards have companies that charge high interest rates. Having such kind of a card may not be beneficial, especially if there are other options there. Fortunately, many card issuers currently offer a zero percent annual rate (APR) introductory period.

Having Trouble Using The Card Responsibly

Credit cards play a vital role in determining your creditworthiness. However, if it is not helping you be accountable for paying your debts, it is time to eliminate these cards. Payments that are late or missed will not assist you in reaching your target credit score. Worse, overspending and failing to pay back on time and on a regular basis could result in you getting into credit card debt. This could lead you into too much trouble.

Divorce or Separation

If you are an account on a joint credit card it is recommended to stop using the account when you are going through a separation or divorce. If you're a joint cardholder, you are liable for any past or future charges that are incurred using the account. It's possible for an angry and angry spouse to use your joint card. If you do not cut the account earlier, you might end having to pay off a debt you do not owe.

Retail Credit Card

The most common reason for cancelling your card is when it's a retailer credit card of a shop that you don't shop at. In the long run, keeping such a card would not help, especially in the event that you don't have intentions of buying from them again. This is a typical scenario that shops have become less profitable for the customer or don't provide attractive benefits and perks. In some instances this happens because the credit card company that sells retail has high charges and other charges.

Graduating From College

Another reason to think about the possibility of dropping your card when you've graduated from college. A credit card for students will no longer be beneficial to you. Opening a new one which offers higher rewards would be the best option.

How To Safely Close Your Credit Card Account?

Closing a credit line isn't the end of the world on your score - but it could have a negative impact on. If you're considering closing a credit card, be aware of the possible consequences. And if you do decide to close your credit card, make sure you take the appropriate steps to minimize the harm.

Closing a credit or debit card involves a lot of reckoning. It is important to weigh the advantages and disadvantages. If you decide that the idea of keeping your credit card is not a good idea for you, it's appropriate to close the account. Below are steps you may follow to close a current credit card securely.

Step 1: Redeem Unused Rewards

Step 2: Pay Off Credit Card Balances

Step 3: Pay Off All Your Other Cards

Step 4: Contact Your Credit Issuer

Step 5: Update Payment Information

Step 6: Inform Your Authorizes Users

Step 7: Destroy Your Card

Step 8: Monitor Credit Reports

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Does Closing A Credit Card Hurt Your Credit Score?

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