[ad_1]
Put the scissors down.
Although you may be ready to cancel your credit card, it’s not as easy as simply cutting the card in tiny pieces (although that is one of the steps).
It’s important to cancel a credit card the right way, so you don’t get hit with unexpected fees or discover three months later that the number’s been stolen.
Should You Cancel Your Credit Card?
If you’ve recently paid off your credit card, it may seem like a good idea to cancel it, too — especially if you don’t intend to use it anymore. However, you should consider this move carefully, because it can have an impact on your credit score.
Why Closing Your Credit Card Account Might Be a Bad Idea
Credit cards often get a bad rap — and rightfully so, if you’re paying double-digit interest and getting hit with late fees. But for those who’ve used their credit responsibly, canceling an account can damage your credit score. Here’s how.
Payment history
Your payment history accounts for approximately 35% of your credit score. Making credit card payments on time every month positively contributes to this.
Eliminate the card, and you reduce the number of accounts that count toward your on-time payments.
credit utilization
This may be the strongest argument for holding onto your credit card.
The credit utilization ratio represents how much of your available credit you actually use. To calculate yours, divide what you owe across all your credit accounts (think: credit cards and other credit lines like a home equity line of credit) by the total credit limits for those accounts.
Closing a credit card could send your score up — way up.
For example, let’s say you had two credit cards — each with a credit limit of $8,000. On the first card, you had a balance of $4,000; on the second card, you had a balance of $1,000. Your credit utilization ratio was $5,000/ $16,000 = .3125 or 31.25%
Most experts recommend a credit utilization ratio of 30% or less, so your score is…
[ad_2]
Source link
