There may come a time when you decide that you are ready to cancel a credit card. Maybe you don’t like customer service, or you’ve found a different card that better meets your needs. In some cases, canceling a credit card that you think isn’t very useful makes sense. But before you embark on this journey, here are some important steps to take.
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1. See how long the card has been open
Canceling a credit card that you haven’t opened for a very long time isn’t a big deal. But canceling a credit card you’ve had for 10 years is another story.
A key factor that goes into calculating your credit score is the length of your credit history. Keeping long standing credit card accounts open is actually good for your score, so before you cancel a card, see how long you’ve had it in your name. And consider keeping it if it can help keep your credit score intact.
2. Check if the card charges an annual fee
If you have a credit card that doesn’t work for you and comes with a high annual fee, then canceling it could make a lot of sense, even if that card has been open for a while. But if there’s no fee on hand and you’ve had it for a while, then you might as well keep that card.
And even if you do not have if this card has been open for so long, it still adds up to the total spending limit on all of your credit cards. The higher your spending limit, the more it can improve your credit score by keeping your credit utilization rate in favorable territory. This ratio measures your credit card balances to your total line of credit, and keeping that not-so-good card open means keeping the spending limit it gives you. (Plus, it never hurts to have this map handy in an emergency.)
3. If there is is fees, see if it’s negotiable
You never know when a credit card issuer may be willing to lower or waive their fees, permanently or for a period of time. Before closing a credit card, it’s worth having this conversation and seeing what your options are.
4. Make sure you have used all of your reward points
You may decide that one of your credit cards is just not worth keeping. But before you close your account, be sure to redeem any reward points or cash back rewards you are entitled to. In fact, don’t just use these perks – wait until you make sure you receive your reward item in hand or your cash back arrives in your bank account before canceling your card.
In some cases, canceling a credit card won’t really have an impact on you. But in other cases, closing a credit card account can have consequences. Before taking this step, check these key items off your list. This way, canceling your card will not damage your credit or lose the financial rewards you are entitled to.