Is It Bad To Close A Credit Card?

Closing a credit card is a decision that should be approached with careful consideration, as it can have both positive and negative implications for your financial health. The activity is quite a common practice in the United States. Indeed it was found in a 2019 survey that out of 2,301 adult credit cardholders, 61% had cancelled at least 1 credit card and 37% had canceled more than 1 card.

With this in mind, this article explores the various factors to consider when deciding whether or not to close a credit card. Dollar Hand weighs the potential benefits and drawbacks to help you make an informed decision aligned with your financial goals.

 

 

What Are The Pros And Cons Of Closing A Credit Card?

 

Closing a credit card account can affect several aspects of your financial profile, including your credit score, credit utilization ratio and overall credit history. It is essential to understand these factors and how they may be impacted by closing a credit card before making a decision. Consider the following pros and cons below:

 

Pros Of Closing A Credit Card	Cons Of Closing A Credit Card
A potential benefit of closing a credit card is eliminating the temptation to overspend, particularly if you have a history of accumulating debt on that card. By closing the account, you can remove the temptation and reduce the risk of falling into debt.	One of the main drawbacks of closing a credit card is the potential impact on your credit score. Closing a credit card can decrease the average age of your credit accounts, which may lower your credit score, especially if it is one of your oldest accounts.
Closing a credit card can simplify your financial life by reducing the number of accounts you need to manage. This can make it easier to track your spending, monitor your finances and stay organized, leading to better financial habits overall.	Closing a credit card can affect your credit utilization ratio, which is the amount of credit you are using compared to your total available credit. If you close a credit card with a high credit limit, it can increase your credit utilization ratio, potentially damaging your credit score.

 

What Are Some Key Considerations To Take Before Closing A Credit Card?

 

Before closing a credit card, there are several factors that you should consider. First, you should evaluate the age of the account and its impact on your credit history. If the credit card is one of your oldest accounts, closing it could have a more significant impact on your credit score.

You should also consider any associated fees or benefits of the credit card. If the card has an annual fee, for example, you will need to weigh whether the benefits of keeping the card open outweigh the cost of the fee.

If in doubt, it is always wise to consult a financial advisor, credit counsellor or your local bank. They should be able to give you personalised advice or recommendations that are tailored to your exact situation.

 

What Are Some Alternatives To Closing A Credit Card?

 

If you are considering closing a credit card but are concerned about the impact on your credit score, there are alternatives you can explore. One option is to keep the account open but stop using the card for new purchases. This allows you to maintain the account’s history and credit limit without increasing your debt.

Another option is to request a credit limit decrease on the card instead of closing it. This can help reduce the risk of overspending while keeping the account open and preserving your credit history.

 

 

What Are The Steps To Take When Closing A Credit Card?

 

If you ultimately decide to close a credit card, there are several steps you should take to minimize the impact on your credit score. First, it would be sensible to pay off any outstanding balances on the card to avoid accruing interest charges.

Next, redeem any rewards or cash back associated with the card before closing it. Contact the credit card issuer to request closure, either by phone or in writing. Be sure to follow up to ensure that the account is reported as closed on your credit report.

After closing a credit card, it is essential to monitor your credit score regularly to track any changes. Keep an eye on your credit utilization ratio, average age of accounts and other factors that may be impacted by the closure of the card.

If you notice any significant changes to your credit score or credit report, take steps to address them promptly. This may include disputing any errors or inaccuracies on your credit report or implementing strategies to improve your credit utilization ratio.

 

The Bottom Line

 

In conclusion, whether it is bad to close a credit card depends on your individual circumstances and financial goals. While closing a credit card can have short term consequences for your credit score, it may be necessary to improve your financial well-being and avoid future debt.

By weighing the pros and cons, considering alternative options and taking proactive steps to minimize the impact on your credit score, you can make an informed decision that aligns with your overall financial strategy. Remember to evaluate your options carefully and seek guidance from a financial advisor if needed to ensure that you are making the best decision for your financial future.