For several reasons, you might want to cancel your credit card. You might want to switch to a better card, be fed up with paying the annual fee of the credit card, or decide you no longer need it. There is nothing wrong with closing the current credit card if you have a good offer on a new card but be careful not to close it too quickly. Your credit score may suffer if you close a credit card that has been open for a while.

How will your credit score be impacted if you close a credit card?

You should always evaluate the benefits and drawbacks of your behavior on your credit score before terminating a credit card. Before canceling your credit card, keep the following things in mind:

Your credit line will be lower if you close your credit card. It will further raise your credit utilization ratio, which can be viewed by lenders as a risk factor because it demonstrates that you are using a larger portion of your available credit. It’s recommended by experts that you keep your credit utilization rate under 30% and it is preferable to have it lower. By dividing your total credit card balances by your total available credit, you can determine your credit utilization ratio.

When should your credit card be canceled?

In some circumstances, such as the following, you might think about canceling a credit card:

• If you have a credit card with a high annual fee but few extra perks.
• If you want to keep a balance on your credit card despite the high-interest rate.
• Having credit cards makes it more tempting to live beyond your means if you are not able to handle your debts.
• Obtaining a regular or rewards card if you want to cancel your secured or student card.

However, in the following situations, you need to keep your credit card open:

• It is one of your credit report’s earliest accounts.
• It will be more difficult for you to obtain credit in the future if you have fewer credit accounts because closing a credit card will further reduce your credit history.
• If you’re terminating your credit card because you don’t use it frequently.

How can a credit card be cancelled without lowering your credit score?

Following are some suggestions to keep in mind if you have decided to close your credit card account to avoid any future problems:

• Before you cancel your credit card, pay off all remaining balances.
• If you have a reward card, redeem all unredeemed rewards.
• To prevent missing payments, if you have any auto-payments set up on this credit card, stop them or switch them to another option.
• Inform your credit card company’s customer service that you wish to close your account and request that they verify in writing that the account was suspended at your request.

Conclusion

If you are in a situation where you feel closing your credit card account is necessary, plan out when and how to do it. For example, if there are any upcoming credit applications, you might want to postpone the cancellation. And once your account is closed, it’s best to make sure that all of your credit cards are paid off before anything else.