Closing your Credit Card without hurting your Credit Score

Are you thinking to cancel your credit card? Before you think of cancelling your credit card, think twice! You must take appropriate steps into consideration before closing your credit card for good with minimum damage to the credit score.

How to Nicely Cancel a Credit Card

Here’s an agenda of how to nicely cancel a credit card successfully:

Should Credit Card be Cancelled?

The primary question is to understand if a credit card needs to be cancelled? A zero balance credit card also helps to boost your credit card score & get an instant loan in the near future.

There are 2 cases when closing a credit card is important:

• You need to keep your spending instincts under control
• There’s an annual fee attached to every credit card you take

If the two points above make sense in your case, then you must cancel your credit card because here you are unnecessarily losing money.

Steps taken Before Cancellation of a Credit Cards

Let’s also have a glimpse at the steps before cancellation of a credit cards:

Understand the Impact on your Credit Score

Before you even close any credit card account, you must understand its immediate fallout. Just after cancellation if a credit card, the payment information doesn’t show in the credit history so soon. When your accounts are still open, every credit detail reflects in the accounts for always. However, in case of closed accounts with zero balances and negative data stays only for 10 years after they are reported.

Usually, the negative points expire sooner than the positive ones. Negative data such as late payments and foreclosures are wiped off after 7 years of critical impact. If the account doesn’t turn positive, then its finally charged off & sent to collection for the original account to be deleted. This increases the stay for positive information to remain stay longer than negative data.

Also read: How to break the Credit Cards addiction? 9 Action Steps

Lenders are also interested in looking at the current credit in use & then finally the credit limit stands canceled. This way they like to evaluate the balance-to-limit ratio aka the credit utilization ratio. This is an ideal way to assess the amount in use compared to the total credit available.

From a lenders perspective, “a low balance-to-limit ratio is a strong indicator of good credit risk,” he says. Closing a credit account can hurt your credit score if it had a high credit limit.

Old Credit is Good Credit

The age of your credit account has a gigantic impact on your credit score. They say a longer positive history is beneficial to your individual credit score. So, closing an old account will have greater impact as compared to shorter credit account.

A credit score is the generally a reflection of a personal credit history & how he conducts his financial transactions. For one person closing an account could mean higher risk while for others low risk proposition.

If you’re young, aspiring & have a shorter credit history, then closing your account could hurt your credit score & vice-versa. Kindly note that if you cancel an existing credit card and replace it with a new card, your credit card will still not experience an impact!

Also read: 5 Things ‘To Do’ Before a Closing Credit Card