Well, we all are well-versed with the consequences of canceling a credit card. One of the biggest drawbacks of doing so is that it impacts a person’s credit score. However, canceling a credit card is not always a bad decision.
Sometimes, it is even great to leave a credit card account open, no matter if a person is not using it at all.
Needless to mention, there are a number of considerable reasons to never cancel a credit card that we have included in this blog. In case you have already decided to cancel yours, we have also given detailed guidance to cancel a credit card the right way.
Keep reading!!!
Everything You Must Know About Credit Utilization Ratio
Lately, multiple credit experts stated the disadvantage of closing unused credit cards. There is a strong reason for it!
One of the experts said that canceling credit cards potentially cut down an individual’s credit score rather than increasing it. This may shock people who think that canceling a credit card can increase and improve their overall credit score.
But the main question that arises is, why does the score drop? The primary reason for this is because when a person closes his or her credit card, it directly impacts his or her credit utilization ratio. This ratio basically measures how much of a person’s total available credit is used, as per his or her credit reports. This implies the more available credit a person utilizes (according to his or her reports), the worse the impact will be on his or her credit score.
Also Check: Top 5 Ways To Improve Your Credit Score
People should try their best to pay off their credit card balances every month, that too on a complete basis. In such a way a person not just protects his or her credit scores but also saves a large chunk of money in interest.
As mentioned earlier, a complete payment of credit balance is very important and you should always do so before closing your credit card account. When the credit reports of a person show $0 balances for every credit card he/she possesses, then he or she will find no trouble while closing the card. This way, one will also not hurt his or her credit score.
Top Reasons To Cancel Your Credit Credit
As mentioned in the very beginning, it is not always a bad idea to cancel a credit card.
One should consider canceling his or her card in the following circumstances:
- Divorce
It is always advised closing joint credit card accounts during/after a divorce. It will eventually avoid any liability from any past or future charges due to your ex.
- High Annual Fees
Well, every individual out there applies for a credit card with so many dreams. But most people end up with a high annual fee/charge, thus increasing the expenses. In this case, canceling the credit card is the best way to prevent burning a hole in your pocket. Furthermore, you can switch to some other card issuer who charges less.
- Too Much Temptation
Most credit cardholders use their cards too much to resist. Although this is one of the biggest reasons to cancel a credit card, you can also rely on some saving tips to curb overspending, that too without sacrificing your score.
Also Check: Never Pay For These Items With Your Credit Card!
The Right Process To Cancel Your Credit Card
So, if you have made up your mind to cancel your credit card, here are 6 easy and effective steps to do it in the right way:
- First thing first, ensure that you redeem every unused reward on your credit card account before canceling
- As mentioned earlier, pay off all your credit card balances and make it to $0 before canceling any card.
- Get in touch with your credit card issuer to ensure that your credit card account balance is $0.
- Send a certified letter to your card issuer via mail to cancel the credit card account. In the same mail, request them to mail you back a letter confirming a $0 balance as well as closed account status.
- Check your 3 credit reports 30 to 45 days after cancellation to ensure that the credit card account report is closed and the balance is $0.
- Dispute incorrect details on your reports with the 3 credit bureaus.
All in all, “closing a credit card leads to losing credit” is a myth. So, consider the aforementioned points and follow the 6-step process to close your credit card both safely and easily.