If you are considering closing a credit card, you may be surprised to find out the impacts that this will have on your credit profile such as the ratio credit available to credit used. Although keeping unused credit cards open theoretically can help improve your credit score, there are valid and important reasons for closing them anyways such as reducing credit risk, or plainly having one less monetary item to worry about.
Before canceling a credit card, take time to review your creditor’s rules for closing the account. The rules may affect your decision, and you don’t want to find out about a difficult one after you’ve requested cancellation. Your creditor’s rules can be found in the credit card agreement, or you can request them directly from the issuer.
Redeem any rewards you may have earned. If you cancel the card without redeeming your rewards, you will normally lose them. If the card has been paid off, remember to cancel automatic payments so that you don’t have to chase down any overpayment that may be debited from your account.
We recommend canceling your card only after paying off the balance. If you cannot pay the balance of your credit card, you may want to consider transferring it to a different card with lower interest rates.
Once the credit account has been successfully closed, check your credit report and destroy the card. Keep in mind, it may take a month before your credit profile reflects the closed account. Consistent monitoring of your credit profile is an excellent habit and will help to prevent fraud from damaging your credit score, alerting you to dispute it immediately (and not when you’re in the middle of trying to get a loan for an important acquisition), or a year after the fraud occurs.
Hopefully this information helps you to make an informed decision about whether or not to close your credit card, and best practices for doing so. If you need more assistance understanding your credit profile and finding ways to regain control of your debts, our credit counseling program can help review your current financial situation and design a customized budget to help you repay your debt.
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