Jul22
Canceling a Credit Card: What you May not Know
You may want to close a credit card account for a variety of reasons: you simply don’t use it anymore; the interest rate is too high; you don’t need the temptation of overspending; or you are simply unhappy with the credit card’s terms and conditions.
Whatever the reasoning behind your decision it is important to understand that canceling your credit card may not be your best bet. And here’s why:
- If you cancel your credit card before the balance is paid off the credit card company may hike up the interest rate on the remaining balance. In fact, the credit card company may even hike up your interest rate if they think you may cancel. It is therefore in your best interest to stop spending on the card and pay off the balance in full before you decide to cancel it.
- If you plan to cancel your credit card in hopes of increasing your credit worthiness or bumping up your credit score, you may want to reconsider, particularly if you have plans to take out a large loan (i.e. home loan or car loan) in the near future. This is because your credit score is largely based on your available credit. In other words, canceling a credit card lowers your available credit, thereby lowering your credit score.
However, if you are dealing with credit card debt problems then it is probably a good idea to cancel the card once it’s paid off to eliminate the risk of spending. The decision is ultimately up to you and will largely depend on your current financial situation.
If you are one of the lucky few to have a zero credit card balance then it will likely not hurt your credit card score to cancel any unused or unwanted credit cards.
You may also want to keep in mind that you may be swayed by the credit card company to rethink your decision to close your account. If the credit card company representative offers you a better interest rate or special promotional rate, you may want to reconsider your decision and hang on to the card.
