There are many reasons you may want to cancel your old credit card. People will sometimes do so in an attempt to better their credit score, take control of their spending habits, or reduce their security risks. However, there is much to consider when making the decision to cancel an old card:
- Decreased fraud risk
- Good credit from that card will stay on your credit report for 10 years
- Helps reduce the chance of falling into a great amount of debt
- No temptation to use the card
- Have to pay off balance
- Miss out on rewards
- Lose the value of the unused credit limit, hurting your credit score
- Lenders like to see commitment to accounts
What You Need to Know
When canceling your old credit card, be sure to call the credit card company to ensure that you have a zero balance.
Canceling your credit card will not increase your credit, even if you are not using the card anymore. The account that you closed will fall off of your credit report more quickly than an open account will and credit reports favor long credit histories.
You may want to consider canceling your card if the credit card fee is doing more damage than good to your finances and you are not getting as much out of your rewards as you would like. It is also important to keep in mind what you are planning for the future. If you are not planning on taking out a loan, trying to get a mortgage, or looking for a job, it is most likely a good time to cancel an unneeded card.
If you are canceling your card and looking for a new one, keep in mind that when an application is filled out, inquiries are posted. These inquiries state who pulled your credit report and on what date. The inquiries remain on your credit report for 24 months (as required by federal law) but credit scores are only concerned with inquiries that are less than one year old.
Be sure to check on your credit utilization ratio which can be determined by: the amount of credit you use divided by the amount of credit available to you. It is good to keep your credit utilization ratio under 30% in order to have a good credit score.