Improves The Average Age Of Your Credit:
Keeping your zero balance credit card open could increase the average age of your credit card accounts, which is influential when calculating your VantageScore credit score.
Let’s say that zero balance account was opened in 2015, and the other one with the $300 balance and $1,000 credit limit was opened in 2019. If you close your 2015 account, then you’re going to look like you’ve only just started to get access to credit. Keeping an older credit card would show lenders that you are capable of managing credit over a number of years.
Consider Alternatives To Canceling Your Credit Card
Even if closing a credit card wont affect your lifestyle or credit profile too much, it still might be easier not to close the card. In fact, there are several alternatives that could end up being less risky.
Put the card in a drawer. Maybe youve decided you just dont like using credit cards. If thats the case, consider keeping the card and putting it away instead of closing it. This course of action might seem obvious, but keeping the account open while removing the temptation to use the card could be a straightforward way to keep the card without harming your credit. Find another way to handle mounting debt. If youre trying to get out of credit card debt and dont want to add new payments, you might be considering negotiating to close the card account with your issuer. But you might also be able to pay off your debt with a balance transfer credit card or personal loan. These options might offer a more manageable way of paying off your debt. Downgrade your card to avoid an annual fee. If youre paying an annual fee on a card you dont use, you could ask your credit card company if it can keep the account open while downgrading you to another card with no annual fee.
Pay Off Any Remaining Balance
Pay off your credit card in full or, if you can find a balance transfer card with better terms, transfer the balance. You cant completely close a card until the balance is paid.
If you dont want any more charges accrued to the card until the balance is paid, you can contact the issuer and ask that the card be frozen until the balance is cleared and the card closed.
If you normally carry a balance from one month to another, you will need to pay the full statement balance two months in a row to wipe out the balance and stop further interest charges from accruing.
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Ways To Keep Credit Cards Open
If youre trying to keep a credit card open, just remember there are many ways to do this. You can:
- Ask for a retention bonus or annual fee waiver. This can offset the cost of keeping the card or allow you to keep it for an extra year.
- Downgrade the card;to a no annual fee card at the same bank. This keeps your credit line alive and generally keeps the account alive too for aging purposes.
- Product change the card to another card you would prefer, even if its a card with an annual fee.
Really, before you close a card you should always be looking for a retention bonus the worst they can say is that theres no offer.
When To Close A Credit Card
To reiterate: All things being equal, its best to keep accounts open. This is not to say there arent situations where selectively shutting them down makes sense.
Those situations include:
Tom Jackson focuses on writing about debt solutions for consumers struggling to make ends meet. His background includes time as a columnist for newspapers in Washington D.C., Tampa and Sacramento, Calif., where he reported and commented on everything from city and state budgets to the marketing of local businesses and how the business of professional sports impacts a city. Along the way, he has racked up state and national awards for writing, editing and design. Toms blogging on the 2016 election won a pair of top honors from the Florida Press Club. A University of Florida alumnus, St. Louis Cardinals fan and eager-if-haphazard golfer, Tom splits time between Tampa and Cashiers, N.C., with his wife of 40 years, college-age son, and Spencer, a yappy Shetland sheepdog.
How Is Your Fico Score Calculated
First, lets go back a step and explain how a Fico score is calculated.
- 35% Timely payments paying all of your bills on time
- 30% Credit utilization how much of your credit limit you spend
- 15% Credit history- for how long you have credit
- 10% Credit mix- the type of accounts you own
- 10% New credit- how many credit inquiries or new accounts you have
How Many Credit Cards Should You Have
Theres no definite answer to this question, and it largely depends on how you handle your credit cards. Keep low or zero balances on your credit card accounts, particularly compared to your overall credit limits and the amount of income you earn. If you do so, having several cards wont affect your credit too much or your ability to get a loan or mortgage.
In fact, having more than one card lowers your credit utilization rate because you have more credit available to you. This is great for your credit scores as long as you dont charge up the cards too much.
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Consider The Timing And Impact On Your Credit
When you close a credit card, your credit score may be affected. Its helpful to understand that a part of how your credit score is calculated is the length of your accounts and your credit utilization. Your score goes up the more unused credit you have available compared to the debt you have used. When you cancel a card, your available credit goes down, worsening your credit utilization ratio. While this may help you avoid the temptation to overspend or help simplify your bills, you should still keep in mind that this may make it more difficult for you to find financing on large purchases like a car or home. Talk to a financial advisor if you are uncertain about whether you should cancel your card.
How To Cancel A Credit Card Without Hurting Your Score
With banks, grocery stores, credit unions, and department stores all offering lines of credit, it can be all too easy to have a collection of credit cards. When each card offers unique travel and cash back rewards designed to motivate you to spend, the situation can quickly get out of control. The average American cardholder has 3.7 credit cards, so if you find you have too much plastic in your pocket, you may be wondering how to cancel a credit card to get control of your finances.
First, it is essential to consider if canceling your credit card if the right choice for you. Canceling your credit card is a simple solution to a complex problem, and there may be repercussions that affect your credit score or ability to qualify for loans. In addition, if youre like most Americans with an average of $6,375 of credit card debt, you likely have unhealthy spending habits that may cause you to further into debt even if you do cancel a card. Before making a decision, youll want to weigh the pros and cons of canceling your credit card and make sure youre not deactivating your credit card for the wrong reasons.
If you feel confident about your decision to cancel your credit card and you have talked to a financial advisor, keep reading below to learn how to cancel a credit it card:
Check Your Credit Report To Ensure The Account Is Closed
You may want to get a free copy of your credit report to make sure the account is marked closed. It will take seven years for any late payments or delinquencies associated with that account to disappear from a credit report. The good news is that good credit history will remain on your credit report longer. A closed account that was in good standing will remain on your credit report for ten years. This will help shift the majority of your credit information to positive as time passes.
When Should You Close A Credit Card
Closing a credit card isnt ever going to help your credit score, so you should think twice before you do it. However, there are a few instances when you should go ahead and cancel a card:
Youre paying an annual fee. If the card charges an annual fee and youre not reaping enough rewards to make the fee worth it, go ahead and close the account.
Youre struggling to stay out of debt. If youre working hard to pay off debt and youre worried about racking up a bigger credit card balance, its better to close accounts than to leave yourself open to temptation. In fact, its possible to close credit cards that still have balances; you just have to work out payment plans with your card issuers.
You have too many cards to keep track of. Just one charge that goes unnoticed can spiral into a mess of late fees and calls from collectors. Though there are tools you can use to keep tabs on all your accounts, if you dont trust yourself to stay on top of all your cards, its probably best to get rid of any unnecessary accounts.
Choosing whether to close a credit card is up to you. Often it makes more sense to just leave it open rather than risk any hits to your credit score. But as Griffin pointed out, its always best to base your decisions on what makes the most sense for you financially rather than what might happen to your credit score.
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Upgrade To An Unsecured Card
Instead of closing a secured credit card, ask your credit issuer if they can upgrade you to an unsecured credit card. Some issuers upgrade you automatically after you demonstrate responsible credit use for a specific period of time. If your credit issuer is not able to graduate you to an unsecured card, they may be able to tell you what you can do to earn an upgrade in the future.
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Update All Automatic Charges
Make a list of every automatic payment assigned to the card that was lost or stolen. Make a special note of the date each payment is set to hit your card. Because it can take anywhere from a few days to a week or more to receive a replacement card, you might have to make payment arrangements with merchants set to charge your card before the new one arrives.
For the others, contact the merchants the day you receive your new card. Explain the situation, and instruct them to delete the old card number from their records and set up future payments to deduct from your new card.
Monthly automatic payments are usually easy to remember, but do not leave out any charges made only quarterly, biannually, or annually. These are the ones that frequently trip people up and cause issues with their credit reports.
Will My Credit Score Be Damaged If I Close Several Credit Card Accounts At Once
For a variety of personal reasons closing credit card accounts might seem like a good idea.
Do these reasons to do so sound familiar?
- You want to avoid the temptation.
- Youre tired of pesky annual fees.
- The rewards arent as useful as advertised.
- Keeping up with a bunch of closing dates is a pain, and the penalties if youre late even just one single, puny time can be punishing.
- You have some accounts you havent used in years and you have enough worries about crafty data thieves cracking the accounts you do use.
Every one of those constitutes a perfectly rational reason for shutting down one or two or even several credit cards. And if your call to action is a landslide of celebration-inspired bills Christmas, Easter, birthdays, weddings, etc. Riley Adams gets it.
An unintended binge-spend during the holidays can often elicit some consequences on your financial bottom line, says CPA Riley Adams, a Google Senior Financial Analyst. For those shocked enough, they decide to cancel one or several credit cards. They reason: I cant spend on credit cards I dont have.
While, on the face, that makes sound financial sense, it often manifests in negative consequences in unexpected ways.
Understand, too, that if your mind is made up, there are ways to soften the blow that, in fact, done strategically, you can close credit cards and actually improve your FICO score.
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Alternatives To Closing Your Oldest Credit Card
If you’re considering closing any credit card account, Griffin recommends you first ask yourself, “Why do I want to close it?” That may be due to an annual fee or high interest rates, like we mentioned above.
If you’re looking to get rid of an annual fee card, consider asking your card issuer for a retention offer, like I did last year with my American Express® Gold Card. This may include them waiving or lowering your annual fee, or offering cash back, points;or;miles to help offset it.
And if you have a card with a high interest rate and debt, try calling to ask for a lower interest rate. If you have a relatively good history and always make your minimum payment on time, your card issuer may be willing to work with you. After all, it never hurts to ask.
It Could Shorten The Length Of Your Credit History
Under most credit scoring models, the length of your credit history is highly influential, but not all models deal with open and closed accounts in the same way.
For example, when calculating length of credit history, some scoring models may only average together open, active accounts and ignore closed accounts, which can shorten the length of your credit history. In that case, closing older credit cards can have a negative effect on the length of a persons credit history.
Other scoring models average together both open and closed accounts, which does not shorten the length of your credit history.
Even so, all closed credit card accounts typically drop off credit reports after seven to 10 years from last activity. So if the credit scoring model includes closed accounts in length of credit history calculations, the drop-offs could shorten overall credit history length in the future.
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It Could Decrease Your Credit Mix
Maintaining a healthy mix of different types of credit revolving and installment is considered a positive signal to the major credit scoring models. The types of credit, combined with the credit utilization ratio and the length of credit history, are all highly influential when it comes to how credit scores are calculated.
If you happen to close the only credit card you have, and have no other revolving credit accounts, your credit mix could decrease, which could have a negative impact on your credit score.
Pros Of Closing A Credit Card
Canceling your credit card comes with a few benefits, the biggest of which is that it can prevent you from spending excessive amounts of money. It will also prevent you from accruing additional fees and interest. If you struggle with your spending habits, closing your account can remove some of the temptation to spend.
Closing your account may also help simplify your finances. If you pay your bills with multiple credit cards, it can be challenging to keep track of the money coming in and going out. Reducing your use to one or two cards for your daily transactions can help simplify money management efforts.
Another benefit of closing a credit card account is that it may help prevent identity theft. If you are managing several accounts, it may be a while before you notice suspicious activity. Having only a few cards can help limit fraudulent charges.
Check Your Credit Score
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Dispose Of Your Card Properly After Confirming Cancellation
After documenting the cancellation process and making sure that your credit report reflects the closed account, you are finally free to discard your credit card. There are a few ways to destroy; your plastic or metal card, but youll need to pick a disposal method that leaves your information completely unrecoverable from identity thieves.
If you do decide to pick up the scissors, make sure that you are cutting each bit of information including your card number, CVV, expiration date and signature.
Although it may be worth temporarily holding off on closing a credit card if you are in the market for a new loan or mortgage, canceling a credit card shouldnt be a source of major concern for consumers with good credit, since the resulting impact on their credit scores is likely to be minimal and temporary.