How to close your credit card account will affect your credit score

Do you remember the incentive for the first credit card? You may have applied for a credit card when you were in college, or your parents may provide some advice. Either way, you have this card from the early teens or the twenties, it may not be the best card in your wallet. It may have high interest rates, no rewards or high annual fees.

Once you start building good credit, you get a better credit card. Your interest rate is low, you may not have an annual fee or the fee is very low, you may get an air mileage or cash back reward. So why keep a card that is no longer serving you?

How will closing my account affect my credit?

The important thing to remember is that when you decide to close your credit card account, you will reduce your credit utilization. Remember that credit utilization accounts for 30% of the total score. When you close your credit card account or you may exceed the recommended 30% utilization rate, you will need to reduce your spending habits and cause your credit score to drop dramatically.

The average age of your credit account is another important factor in your credit score. This is twofold. If you are not familiar with credit cards, it is best to keep the old cards open as they will retain a 10-year credit limit. The card is rarely used, but actually helps your credit - especially if you have a good payment history. Closing it can hurt your credibility, far worse than those who have built credit for more than a decade.

So what should I do?

If your interest rate is high or your annual fee is high, try to negotiate with your credit card provider. Sometimes, if you tell them that you are considering canceling a card for a high cost, they may work with you. The cost of acquiring new customers far exceeds the cost of abandoning annual fees or lowering interest rates.

Sometimes you have to close a card. If you are spending money because the credit card company will not negotiate to waive or reduce the annual fee, then it makes no sense to keep it. Your credit may be hit, but it will recover. However, due to the annual fee of the card you are not using, you cannot recover the lost funds.

Closing credit accounts should not be taken lightly. Be sure to consider the factors listed above before closing your account.

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