Closing your credit card is not always a good idea, as it could reflect quite poorly on your credit history. We’ll go into how closing your card reflects on your credit, and list a couple of ways to do it as harmless as possible.
Closing Your Credit Card – What Is It?
In this section, we’ll cover what closing your card means.
Closing your old credit card is not as simple as people think. With the average American household having over two credit cards, it’s normal that people tend to close their old ones to avoid paying additional fees, penalties, and other costs.
At times, the cons outweigh the pros, especially when it comes to secured (explained) or credit reparation credit cards. Closing the card will have some implications on your FICO score, which we’ll get into a bit later in the article.
When you want to close your card, you’ll need to contact your issuer via the number on the back of the card you want to close.
In this call, you can expect your credit card issuer to inquire about a multitude of things. As it’s not in their interest for you to close the card, plan your agent to convince you to stay with their credit card company. You might even be offered additional perks such as rewards, bonus features, or balance transfer offers.
After you deny their request, you can finally close your card. Now, after you close your card, as long as it initially reported to Equifax, Experian, and TransUnion, the three major credit bureaus, the closing will get notified.
That will have consequences on your FICO score, credit history, and might leave negative marks on your credit. A tarnished credit score is never a good thing, as it could significantly impact your chances of getting a loan, mortgage, job, and could even lead to more significant interest rates.
Closing a credit card requires a particular amount of finesse if you want it to go as smoothly as possible. Some consequences are unavoidable, but as long as you know what you’re doing – at most, they’ll be temporary and minimal.
How Closing Your Credit Card Reflects on Your Credit?
Below, we will discuss how closing your credit card reflects on your credit, the possible implications, and some worrying statistics and mathematics.
Closing your credit card could result quite poorly on your FICO score, credit history, and chances of opening any future cards. The first thing that will take a hit once you close your credit card will be your credit score, and here is how.
As the credit closing is reported to as many credit bureaus as the card initially reports to, it will lower your credit score. Your credit score is impacted by many things that determine its value, such as payment history, credit length history, amount of debt, new credit, and type of credit.
While closing your card will not put you into debt, it will impact the length of your credit history. The length of your credit history is calculated by adding the amount of time you have on all your credit cards and dividing it by the total number of cards. Now, this means if you have two cards for five years, once you close one, your credit history in total will drop down to 2.5 years.
Another thing that takes a hit is your utilization. If you’re debt-free on all of your accounts (which statistics dictate is unlikely), you won’t suffer any consequences about your utilization. On the other hand, if you do have some debt, your utilization rate will go up, which further decreases your credit score.
That happens because you’re pushing all your utilization to your remaining credit accounts, which in total have a lower credit limit. After you close your credit card, you’ll still continue paying your unpaid credit.
How to Evade Closing Your Credit Card?
If you don’t want to close your credit card and therefore tarnish your credit score, the best course of action is never to open more credit cards than you need in the first place. No one is born with a credit score, and building one takes time, practice, and a card.
If you’re looking for a sound credit building credit card, try to find one that will result as well as possible on your credit score when you close it. Make sure that all the effects are as minor and as temporary as possible.
Not closing a credit card is as simple as not opening it in the first place. If you want to open a brand new credit card to pay off a debt, make a significant purchase, or upgrade your existing one, reconsider finding alternative ways to achieve your goals.
What to Do Before Closing Your Credit Card?
There are a couple of precautionary steps you want to take before you close your credit card. As closing your credit card will never be painless, you’ll want to ensure that it’s as painless as possible.
- The first thing you will need to do before you close your credit card is to check customer support. Once you call your card closing line, you will get a detailed presentation on why you shouldn’t close your credit card.
- That might even include a couple of added perks and benefits. If these fit the bill and continue using the card without closing it with the additional benefits, do so. If not, inquire with your customer support about the possible repercussions of closing your credit card.
- Another important thing to do before you close the card is to read your credit card contract thoroughly. Studies show that a significant portion of Americans doesn’t understand their credit contract (source) thoroughly or at all – and that’s quite a worrying statistic.
- Reading your credit contract will give you essential information on closing your credit card, and the terms and conditions behind doing so.
After you close the card, it will take some time before it reflects on your credit score. So if your credit score doesn’t take an immediate hit, keep in mind that it can take up to a month for the closing to affect your FICO score.
When It’s Okay to Close Your Credit Card (5 Situations)
In this section, we will present 5 situations when it’s best to close your card and how you can do it as harmless as possible.
We’ve discussed why closing your credit card might not be a good idea – but at times, there is no other way around it. Owning a credit card that you don’t use anymore could result in additional payments, charges, and annoyances, so closing it is the only viable option.
You should never close your card because you merely have too many. The deprecations listed in this article are all viable and could affect you as long as your credit cards are irresponsible. Just like with purchasing, you should always practice caution when you’re closing your credit card.
Below, we’ll list 5 situations where you should close your credit card.
1. When the Pros Start to Outweigh the Cons
There are many pros when you’re using a starting card (Fit, Reflex, Surge, etc.) to build or rebuild your credit score. Not everyone has a perfect credit score, so using a card to repair it is essential. These cards don’t usually come with many perks, features, bonuses, or benefits, and at times they tend to have quite a high APR and fees. If this is the case, you should close your card.
2. When You’ve Gotten All Your Dues In Order
Getting all of your dues in order and opening a new account is the dream of most Americans. As most Americans are in some sort of debt – or are paying off credit – getting out of it is essential. Once you’ve paid off all of your credit, boosted up your credit score, and you’re prepared to get a better card – go for it.
Before you go for it, you’ll have to keep all of your debts and dues at an absolute minimum – ensure that your balance is withdrawn. Before you close a card, make sure that you have zero balances on it.
3. When Closing the Card Won’t Impact You Greatly
While most American households have more than one card in their midst, that’s not the limit. Some people have over six credit cards, and managing all of them could be nightmarish. Closing them off all at once is a surefire way to ruin your credit in absolutely no time.
If you have multiple cards and are looking to close them, make sure that the closure will not impact you significantly. Keep in mind all of the things that happen once you close a card and act accordingly. If you can take the hit, you should go for it.
4. When You’re Upgrading Your Card
As stated above, no one is born with a perfect credit score. Getting your credit score up to an excellent or good level is not an easy task, and once you’re there, your credit building card won’t cut it. Credit building or reparation cards don’t come with many features, bonuses, and benefits – but excellent credit cards do.
When you’ve gotten to a particular level of credit, you might want to consider updating your credit card. While you can apply for one as soon as your credit is up there, it’s always best to first close your card before you do so.
5. When You’re Getting a Divorce
That might not be the best situation to think about your card, but it is one where you have to consider it. Most couples have a joint account for their mutual credit, and once they’re separated, a joint credit card won’t do either of you any good.
When you’re getting a divorce, you’ll want to close your account. As both of you have access to the card, you don’t want to be stuck paying off any debts, dues, and penalties that your ex-spouse has racked up. Closing your joint-account credit card should be one of the first things you do when you divorce.
Closing your credit card will not be the most comfortable thing in the world, as it impacts your FICO score and could wind up hurting your credit quite a lot. In this article, we’ve listed why closing your card could be harmful, affect you, and the five different situations when you should close your credit.
Remember, closing your credit card is all about finesse – so don’t bite off more than you can chew.