When you have several credit card accounts open, you might consider canceling some to make your financial life easier. While canceling a credit card can be helpful in some situations, it can also hurt your credit score and make it more difficult to receive financing approval.
Personal Factors
For some people, canceling a credit card is one of the best decisions that they could make. If you are the type of person who cannot control your spending, canceling your credit cards might help you gain control of your financial life. Even if it has a negative impact on your credit score, it is better than continuing to rack up large balances on your accounts. Simply cutting up the card may not stop you from spending online.
Length of Credit History
When you cancel a credit card, you risk shortening your credit history. One of the important variables when calculating your credit score is the length of credit history on your profile. If you cancel the card you have had the longest, you will potentially hurt your credit score. If you do cancel a card, make it one you have not had the longest.
Change Ratios
When you cancel a credit card, you may inadvertently affect your credit utilization ratio. This is what creditors use to gauge how much of your available credit you currently use. If you cancel a credit card, you lower the amount of available credit that you have. For example, if you had a credit card balance of $2,000 and available credit of $20,000 on all your credit cards, this means that you have a credit utilization ratio of 10 percent. If you cancel several of your cards and get down to an available credit limit of $5,000, your credit utilization ratio is now 40 percent. This looks much more risky for lenders.
Permanent Impact
Once you have a credit card on your credit report you cannot remove it, even if you cancel your account. This means that if you have several late payments and negative statements from a credit card company, canceling that account will do no good. All of the records will remain on your credit report. Instead of canceling the account, leave it open and simply pay off the balance.
0 comments:
Post a Comment