Holding numerous credit cards usually encourages excessive spending. For cards that have high annual fees or interest rates, the cost incurred on the cards is usually high. This may often move those who would like to reduce their spending to cancel the credit card. In addition to having high bills, you may be dealing with unresponsive card issuers. You may have contacted the card issuer regarding reduction on the interest rate on the card but the response may have been unfavorable. Instead of keeping up with the credit account, you can simply cancel the card and do away with that particular expense.
Before closing up a credit card, it is vital to first consider the effect it will have on you. Credit cards are usually linked to an individual’s credit score. Before cancelling the card, it is good to look at the effect it will have on your credit score. You do not need to run away from a credit card issuer because you paid their debt badly. This is because cancelling a card does not mean that information regarding that credit will be wiped off your credit score details. On the other hand, positive information regarding your credit performance is advantageous. Since the positive score and details can stay in the record for long years, it will offer you an upper hand position when you seek loans. The big advantage is that positive information remains on the credit score information longer than negative information.
Lenders usually consider an individual’s balance-to-limit or utilization ratio. This refers to the ratio in the amount of credit that one uses to the credit available to the borrower. Depending on the total credit you may hold, closing a credit card that has a high available limit may be hurting to your score. This is especially the case when you have high balances running on other credit cards or loans that you are holding. The best way to close a card is when you have a zero balance on all active credit cards that you are holding.
If you have an older credit card that issues favorable terms, don’t consider closing it. The longer you hold on to a credit card and with a good record of payment, your credit score moves up. Since older cards with positive payments are beneficial, closing them could have a negative impact on your credit score.
Before you close a credit card account, remember that closing the account doesn’t just wipe off your credit history. It can hurt your history if you were not keen to consider a safer card cancelling process.