How Canceling Credit Cards Will Affect Your Credit Score
There are many reasons why you may want to cancel your credit cards, including an expensive annual fee, high interest rate, few benefits, infrequent usage, or you have transferred your balance to a new card. However, before you cancel your credit card, you must understand the consequences of doing so even if you have a genuine reason.
Canceling credit cards may affect your credit score, so make an effort to manage your cards rather than close them.
Factors That Hurt Your Credit Score
These factors influence your credit score:
- The payment history (35% of the credit score)
- The number of credit accounts or amounts owed by you (30%)
- The length of your credit history (15%)
- Recent credit inquiries or the number of recently opened credit accounts (10%)
- Number, types, and size of credit accounts (10%)
How Closing a Credit Card Can Hurt Your Credit Score
You might think that closing a credit card is a smart choice. However, closing a credit card can have a negative impact on a few credit score factors mentioned above. Here are the consequences that you may face after closing a credit card:
- If you cancel a credit card, you will lose your available credit limit. Less credit limit will make your credit utilization ratio higher, which is risky to lenders because it shows that you are using more than your available credit limit. This could eventually affect your credit score.
- Canceling a credit card can lower the average age of accounts on your credit report, especially if the credit account has been open for a long time. A credit card that you have been using for a long time strengthens your credit score as long as you keep it open.
How to Improve Your Credit Score by Using Credit Cards Responsibly
If you want to improve your credit score, you should not use more than 30% of your available credit limit. If you keep your credit utilization ratio under 20%, you will get an excellent credit score. When you attempt to use your credit card’s maximum available credit limit, you will end up with a poor credit score. To have a good credit score, you will need a record of on-time debt payments.
Related Reading: Credit Repair Guide: How to Improve Your Bad Credit Score
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