You can cancel a credit card if these factors apply to you.
Most important points:
- Taking out a credit card can negatively impact your credit score.
- Despite this, there may come a time when it’s worth getting rid of a credit card.
There’s a reason credit card holders are often advised to hold onto their cards, even the ones that aren’t used much. Closing out a credit card can actually hurt your credit score in a number of ways.
First, a big factor that goes into that score is your credit utilization ratio, which measures the amount of your total credit limit that you use at one time. Taking out a credit card can lower your overall credit limit, making it harder to keep that ratio in a favorable area.
Another problem with closing a credit card is that it can affect the length of your credit history. Closing a long-standing account can eventually shrink the average length of your open accounts, which is not good for your score.
But let’s say you have a credit card whose spending limit isn’t that generous, and you haven’t had an open one in so long. In that case, closing it may result in minimal damage to the credit score. If so, here are four signs it’s worth getting rid of a particular card.
1. It charges an annual fee, but you get very little in return
In some cases, annual credit card fees can more than pay for themselves. Say you have to pay $95 per year, but in return you can earn $500 cashback and rewards, as opposed to the $250 you would get with any other card. That alone makes your fee worth it. But if you’re paying a fee for a card that doesn’t give you anything extra, there’s no point keeping it around.
2. The rewards program leaves a lot to be desired
Many credit cards nowadays offer opportunities to score extra rewards or get money back. If you have a card that doesn’t, or limits you to 1% cashback across the board with no bonus money holding capabilities, then it’s one card you might not want to hold onto. Likewise, if your card comes with rewards that expire quickly, you may want to exchange it for another whose rewards program is much more flexible.
3. It charges a high interest
In an ideal world, you would pay off your credit card balance in full every month and not incur any interest charges at all. But we all know that’s not always possible. If you have a credit card that charges much more interest than any other card in your collection, you may want to close that account.
4. The customer service is bad
If you’re having trouble with your credit card, be it a billing issue or fraudulent charges, you should be able to easily contact a customer service representative. And once you do, that person should be in a strong position to help you through the problem. If that’s never been your experience dealing with your credit card issuer, it’s a sign that the card on hand isn’t worth keeping.
It often makes sense to hold onto a credit card for the sake of your credit score. But if you have a fairly recently opened account that isn’t serving you well, it may be time to let go of that card, especially if these signs apply to you.
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