When to Cancel a Credit Card

Yes

Canceling a credit card can feel like ending a bad relationship—especially if it tempted you to spend beyond your means and didn’t give you any useful rewards. However, canceling a credit card isn’t always the best option if all you want to do is stop using it. To know if you should be canceling or simply cutting up your unwanted credit card, read on.

A quick note about terms used in this article. We will use the word “cancel” to mean closing a credit card account completely and not simply to halt charges on a card in case it has been stolen.

Consequences of canceling a credit card

Closing your credit card account can have the unfortunate consequence of temporarily dropping your credit score, because it lowers your credit utilization ratio.* This ratio measures how much of your total available credit you are using. The more credit you are using—i.e. the closer to you are to hitting the credit maximum on your cards—the worse the impact will be on your score.

For example:

*Be sure to read to the bottom to see how to avoid this credit score drop!

Circumstances when you should cancel

There are life and financial circumstances when it is in your best interest to close a credit card account entirely:

In the end

The moral of the story is not to close a credit card account without looking at other alternatives that will help you curb spending but doesn’t endanger your credit score.

If you do need to close an account, do your best to bring all credit card balances to $0 before closing it. This will minimize or avoid any credit score damage as your credit utilization won’t be lowered because you aren’t using any of it! Also, if you can, avoid canceling your oldest credit card and/or the one with the highest limit. Length of credit history (attached to your oldest card) and total credit available are two factors in your credit score.



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