With so many tempting offers out there, there’s no wonder consumers are inclined to cancel a credit card in favor of another one. But your BBB® would like to inform everyone that doing so may not be the smartest decision, especially if:
1. You’re planning to apply for a loan
Credit scores are determined based on your credit utilization ratio or the amount of available credit that you’re having (here’s how to find out yours: divide your credit card balances by your number of credit limits, then multiply by 100). The lower this ratio is, the better. Losing a credit card account means you’ll lose its available credit, which causes your utilization ratio to go up.
2. It’s your only credit card
Having many types of credit cards will have a good impact on your credit score. Having one credit card and closing it might prove to be quite damaging for your credit score.
You can cancel a credit card if:
3. It has an annual fee
If you rarely use your credit card and it also happens to have an annual fee, that only means that you end up wasting your money.
4. You’ve only had it for a short period of time
If you feel like you have too many credit cards, choose to cancel the most recent ones, if possible. And that’s because your credit history is based on the amount of time you’ve had a credit account or account for.
5. You won’t be applying for new credit anytime soon
If you cancel a credit card now, your credit score will take a small hit, which should rebound after about six months.
Weigh all your options and make sure to do your research before you cancel a credit card.
For more information you can trust, visit bbb.org/Evansville!