Why You Should Never Cancel Your Credit Card

Does canceling a credit card hurt my credit score?

Yes, canceling your credit card damages your credit score. Closing unused credit cards will result in a high credit utilization rate, which in turn causes your credit score to lower.

Credit utilization rate is a metric used by credit-agencies to assess how much you’re spending in credit compared to the total amount of credit given to you. By canceling a credit card, you risk having more debt compared to what is being lent to you. 

To put this into perspective, let us say you own two credit cards that each have a credit limit of $2,000, totaling $4,000 in available credit. If you use only one of those credit cards and purchase $1,000 worth of items, your credit utilization rate is $1,000/$4,000 or 25%. Since you only use one credit card, you decide to cancel the other credit card. Unfortunately, when you cancel that credit card you risk a higher credit utilization rate. Instead of having a 25% credit utilization rate, you now have a 50% rate since you spent $1,000 out of $2,000 of your total credit available. Generally, credit-scoring agencies will not penalize you for having a credit utilization rate of less than 30% but as you cancel out credit cards, you are more likely to exceed that.

Should I cancel my credit card if I don’t use it?

If you are highly conscious about your credit score, it would be wiser to keep your unused credit card open. Unless your credit card is charging you an unbearable annual fee or your credit card is new, it’s best to keep it open.

When should I cancel my credit card?

The ideal time to cancel your credit card is right after you have opened up your credit card. If you decide that the credit card you are approved for is not the best fit for you, you should instantly cancel. The longer you wait to close your credit card, the more you jeopardize ruining your credit score. 

You should also consider canceling your credit card when you have a fee that you can no longer afford. For example, a card that is charging you $150 annually may be best to let go even though it may impact your credit score. Depending on your financial situation, you may want to highly consider canceling your unused credit cards.

How do I cancel my credit card?

You can easily cancel your credit card by calling the customer service phone number listed for the issuer. You can find this phone number with an easy google search or on your terms and agreements that came along with your credit card. Your credit card number, name, date of birth, address, and reason for canceling may be asked of you.