you may want to close your credit card for several reasons. you may want to upgrade to a better card, or perhaps you are tired of paying the annual fee, or you have no use for it anymore. you have a better offer on a new card and want to close the existing credit cards, there's nothing wrong with it. but make sure you do not close it very fast. closing a credit card can damage your credit score, especially if it has been open for several years. read below to know more about how closing your credit card affects your credit.
before closing a credit card, you should always weigh the pros and cons of your actions on your credit score. here are a few points that you should consider before closing your credit card:
if you close your credit card, your available credit limit will also reduce. it will further increase your credit utilization ratio, which can be a sign of risk to lenders because it shows you are using a higher amount of your available credit. experts advise that you should keep your credit utilization rate less than 30 per cent. as a general thumb rule, the lower the credit utilization rate, the better. you can calculate your credit utilization ratio by dividing the total of all your credit card balances by the total of all your credit limits and the resulting percentage is your utilization ratio.
closing a credit card can also damage your credit score as it can lower the average age of accounts on your credit report. the age of your accounts is one of the major factors that affect your credit score. credit bureaus give more credit points to individuals with longer payment history. if the credit card that you have closed has missed payments, it will remain on your credit report for five to seven years.
while your credit scores may drop immediately after closing a credit card, you can boost it again in a few months by making your bill payments on time. if you closed an account but did not take on new debt, your credit score will increase in some time. you should avoid cancelling a credit card if you are planning to apply for other credit cards or loans in the next few months.
you can consider cancelling a credit card under a few situations, such as:
on the other hand, you should keep your credit card open under the following circumstances:
if you have made up your mind that you want to close your credit card account, here are a few suggestions that you should keep in mind so you have no issues in future:
if you do not want to cancel or close your credit card and are looking for alternative ways you can remedy the issues that were leading you to want to cancel the card, here are some tips:
if you were cancelling your credit card because of annual fees, you can call your issuer to consider lowering or waiving the annual fee. some companies may be willing to do this to retain their customers.
if you are worried about overspending if you keep the card, put it somewhere secure or you can even pause your credit card account for a few months.
if you rarely use the credit card you wanted to close, you can keep it open by putting a small monthly subscription to your favourite magazine or OTT. however, make sure you don't forget the payment due date of your credit card and make payments on time.
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