All consumers know that having good credit score is of key importance. You are considered to be reliable for renting an apartment, taking a loan or mortgage, or getting a new job. What is more, you can save a good deal of money on interest rates and fees, as people with good and excellent credit score are eligible for the best banks' credit card offers. However, building your credit history and keeping it up to the mark can cost you a pretty penny: plastics for building credit are rather expensive and even consumers with good credit sometimes have to hold unnecessary credit cards just to keep the score high.
When you think about closing one or several credit cards, consider all the pros and cons of it, as in many cases closing credit card accounts can damage your credit. Read on to learn when you'd better avoid closing credit cards and when you may do it without hesitation.
Say NO to closing a credit card account if:
- The credit card is your only credit card at the moment. Even if you have other types of credit - mortgage or auto loans - credit cards will not be included in your credit score mix, so the bank is likely to suppose you have no sufficient experience with credit cards.
- The credit card account you are going to cancel has balance. In this case your credit utilization ratio will get significantly lower. Credit to debt ratio denotes how much credit limit you have with all your credit cards and loans and what part of it you have used. As you cancel a credit card, your credit report will show less credit available, while the used amount will stay the same.
- It is even more dangerous to cut your credit card, if it is the only card in your name and you have an outstanding balance on it. Thus, your credit report will display you having a maxed out credit card!
- The credit card you are going to get rid of is the oldest credit card account in your name. Credit reporting agencies pay a special attention to how you have been managing the oldest account of yours and how long you have been doing that. Old credit card account speaks of your rich experience in credit management.
- Your credit card has good terms and generous rewards. Why should a beneficial card with low interest rate and a bunch of perks like frequent flyer miles or hotel rewards be cancelled? You'd better let go a card with less advantageous terms.
Say YES to cancelling a credit card account when:
- You have too many credit cards (more than 5) and suffer from regular delinquencies. Late payments will damage your credit more than just cancelling a card.
- You are going to reduce the balance on one of your credit cards. Even if you close one of your plastics, your credit to debt ratio will not be tangibly damaged. Cancel one of the newest credit cards.
- The rates and fees of the card are too high to handle. You'd better lose some points of your credit score instead of paying hundreds of dollars just for nothing. Cards that have poor rewards programs should also be cut off as useless.