Do You Need to Cancel a Credit Card Account?

As time goes on, you may find yourself with several credit card accounts, some of which might not even be used or haven’t seen activity for a long time. So it seems that closing that account might make sense or just make your life easier. But the truth is that closing a credit card account just to simplify your life isn’t the reason that we recommend. Today we are going to talk about the risks associated with closing a credit card account and whether or not there are any justifiable reasons to do that.

When Do You Need to Consider Closing a Credit Card Account?

The first reason is for couples that are going through a divorce. This one seems pretty self-evident. Any joint credit card accounts should be canceled, and the balance needs to be addressed through the divorce settlement or the decree.

The second reason you would consider closing a credit card account might be associated with spending habits. Suppose you are not comfortable controlling your spending habits. In that case, if you are consistently maxing your credit card, it might be the right time to cancel your account until you can responsibly manage your credit.

The third reason why you can close your credit card account might be the annual fee that does not fit your budget. This one is something that we would chalk up to wasting money. If you are paying money every year and it’s not being used, it’s not benefiting you; it might be a good reason to cancel the account.

How can Closing a Credit Card Account Affect Your Score?  

The real effect is based on your credit utilization ratio. Suppose you have three credit cards in your name, and you are thinking of closing one of them. As we know, many credit formulas that calculate your score want your utilization ratio below 30 percent in order to reflect in your favor. However, the best utilization ratio toward maintaining month-in and month-out is zero percent each month. Remember that the percentage increase in utilization ratio can negatively affect your credit score.

How to Cancel a Credit Card Account?

Before closing your credit card accounts, check your rewards or point balances, and then redeem them as much as you can. Just do whatever you have to do to make sure that those points won’t be wasted. Pick up your phone and call your credit card company. When you call, the issuer is probably going to dissuade you from closing your account. They might offer you better terms. 

 It’s Essential to Know!

A credit card is a revolving type of loan, which gives an opportunity to borrow fast cash as much as you want, of course, within your credit limit. So if you are sure that using a credit card responsibly has nothing to do with your personality, it would be better to avoid loans with renewable sources.