Will Canceling A Credit Card Hurt My Credit Score?
Having lots of credit cards may seem that you have great credit. Not necessarily. Perhaps you’ve gotten yourself into some financial trouble or just decided to clean out your wallet. Cancelling a credit card or two seems to be the ideal thing, but will cancelling hurt your credit score?
Cancelling your card seems like the right thing to do. Not only will you be “rid” of it, you will no longer have to worry about getting mail or other notification from that particular company. The most logical reason is that you won’t be tempted to use that particular card.
Canceling a Credit Card
Cleaning out your wallet and getting rid of some credit cards may lighten your financial load, but you may want to think twice about actually cancelling the card. This is especially true if you may need to make a big purchase within the next year. However, if you don’t anticipate any big purchases, then it may be right for you to cancel a card.
What happens when you do close a credit card account is that your credit score’s overall utilization rate will typically increase. This is the exact opposite of what you want your credit score to do. The utilization rate can also be called the balance to limit ratio. To obtain this ratio, add up all credit balances and add the total of all credit limits and then divide the total balances by your total limits. The best scenario is having several credit cards with a zero balance and one card with a balance and your payments are made in full and on time.
Another thought to consider about closing a card is if you are having difficulty with your finances. If it is easy for you to grab your card and charge, then you should close the card without hesitation. Your goal is to get your spending under control and credit back into good standing.
Still Wanting to Cancel?
Another factor involved with how your credit score is obtained is by your credit history. Accounts in good standing will fall off your report in ten years while those with bad information stay on your credit report for seven years. It is best to leave those accounts, even with a zero balance, open for as long as possible. If you are unsure if the account will be closed automatically due to no activity, use it on occasion but pay it off the next billing statement.
Something else to consider is the type of credit reflected on your credit report. Your credit score also takes into consideration the types of credit you have. Loans and mortgages also have an impact on your credit. Again, how long you have had these particular debts and how well you have financially kept them all factors into your overall credit score.
The best thing that you can do is to first obtain a current credit report which will show you everything that a creditor will see. Review the report and ensure that everything on it is accurate. If not, you need to address those errors as soon as possible; errors can impact your credit. If you have questions about your report, get answers to help you understand your report. The more you understand, the better decisions you can make; decisions like if you really want to cancel that credit card or not.