It seems that canceling a credit card is the best move you could make for the benefit of your finances. Its not that easy. Closing your plastic account could affect your credit score.
There are certain things that you should consider before going to your bank and deciding to end your credit card account such as if you have an outstanding balance, if there are other alternatives to close the credit card and if it would have a negative effect on your score of credit.
The ways closing your credit card could affect you
While it is not a rule, Closing your credit card could affect your score, depending on how many credit accounts you have open and if you use them responsibly. Here are the two ways this move could impact your history:
1. It could increase your credit utilization rate
The credit utilization ratio represents 30 percent of your FICO credit score. Since your credit utilization ratio is the ratio of your current balances to your available credit, reducing the amount of credit available to you by closing a credit card could cause your credit utilization rate to increase and your credit score to decrease.
2. If you close an old credit card, you could reduce the length of your credit history
You probably won’t see the effect on your credit score right away, since closed credit accounts still contribute to your FICO score until disappear from your credit report, which could be 10 years from now. Closing an old credit card makes up 15% of your FICO credit score.
These are not the only ways closing your credit card could affect you. History issues are not the only ones, but in other aspects of your finances.
Indirect ways closing your credit card could affect you
According bankrate, There are other reasons why you shouldn’t close a credit card:
1. If your credit score is just on the edge of the good credit range and you don’t want to risk losing credit score points.
2. If you are thinking of applying for a mortgage, you don’t want to risk losing points in your history that could put you out of the market.
3. If you have many outstanding balances on your credit cards, closing a card will reduce your available credit to the point where it has a serious negative effect on your credit utilization rate.
4. You really don’t have a good reason to close the credit card because you just don’t use it as often as you use your other cards, maybe that makes you wonder if it’s time to close the account, but it may not be necessary.
So, How much can closing a credit card affect you? It’s hard to have a direct answer. If you continue to use your other credit accounts responsibly, making payments on time every month, maintaining a low credit utilization rate, paying your balances regularly, and meeting your account responsibilities, among other responsibilities, your credit score probably won’t suffer too much. .
A person with a positive credit history will most likely still have a positive credit history even if they close one of their credit cards.
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