Deciding about closing a credit card is part of card debit management. It is accurate that the more credit cards you have, the higher is the likelihood of you incurring debt. However, one shouldn’t rush into cancelling their card. There is a chief element which one must not forget: credit score. Closing an account can easily affect your credit rating negatively. Upstart personal loans are, however, perfect for young borrowers with a bad credit score.
Your credit score is what moneylenders use to regulate your interest rates among the others. So does closing a credit card hurt your Credit? How does closing a credit card affect your credit score? Let’s find out!
Does it hurt your Credit to Close a Credit Card?
Many people have a general query regarding closing a credit card: does closing a credit card hurt credit? Closing a credit card deducts points from your credit card score. The influence is likely to be utmost if you are comparatively new to Credit or have few cards. A lower credit score may make it harder for you to qualify for a loan, an apartment or another credit card, especially if your credit score is near a moneylender’s cutoff.
The possible decrease in your credit card score doesn’t mean that one should never consider closing a credit card, but it does mean, however, that one must think tactically and choose carefully.
5 Reasons why Closing a Credit Card will affect your Credit:
Here are the top 5 reasons as to why closing a credit card can affect your Credit:
1. Your card continues to age:
You are aware that older accounts on your credit reports mean somewhat better credit scores. If a card doesn’t cost you money, there isn’t any point in closing it.
2. Your credit consumption rate stays the same:
Having a card which isn’t in use will enhance your overall credit score, which helps keep your consumption down when you use other cards as well.
3. You’ll maintain diversity:
Credit scoring models prefer seeing a variety of accounts on your credit reports, such as installment loans and credit cards.
4. You’ll have a backup credit line:
It is rather useful to have a credit line of a couple of thousands of dollars put away for emergencies.
5. You’ll have access to benefits:
Other than the essential rewards such as cash back or points, your card might have added advantages and features that you don’t want to lose.
So is closing a credit card bad? There might be a day where you wish to close your credit cards whether you have a card that you never use or a frustrating experience with a specific card issuer. However, it is essential to understand the potential consequences of calling up your credit card company and cancelling your card. Closing credit cards can decrease your credit scores, but sometimes, it’s a smart move.