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Is It Bad to Cancel a Credit Card?

Your credit card also serves as an indication of your financial status. But, is it bad to cancel a credit card? Well, there are instances when closing a credit card account can improve your score. This can be due to cancellation or bankruptcy.

What do you mean by canceling a credit card?

When you cancel a credit card, it will negatively affect the holder’s FICO score. It becomes worse if this cancellation causes a reduction in existing lines of credit. This can lead to a reduced debt-to-credit ratio. It may make the account holder appear riskier in lenders’ eyes.
When the issuer closes a credit card account for inactivity or non-payment, this does not affect the FICO score. However, if you close due to bankruptcy or foreclosure, it will negatively impact your credit history and FICO score.

What are the effects of canceling a credit card?

If you cancel an active card with an available balance, this will significantly affect your score negatively. Canceling closed accounts upon default has no significant impact on the FICO score. However, helping the issuer settle an account through settlement or charge-off may help since it can improve your payment record.

How do I cancel my credit card properly?

You should ensure that you will not be reversing your creditor’s decision to close your account by simply completing the card yourself. To cancel a credit card properly, you should try to talk with the issuer first regarding the reason for canceling and whether they can keep your account open.
Suppose they agree on keeping it active, great! However, if they say “no,” ask for the necessary documents before closing your account, like balance transfer details (if you want to transfer it somewhere else), statement of funds, etc.
Once everything has been settled, make sure that you don’t use this account anymore; otherwise, it will adversely affect your FICO score. When traveling abroad, avoid using local plastic money as much as possible. Most countries offer guidance not to use your home credit cards when traveling, even if it’s just for transactions.
If you don’t have any plans of using the account, try talking with your creditor first before closing it yourself so that they can handle your account correctly.

What are my options if I want to keep my credit score intact?

If you’re planning on applying for any form of financing soon or currently have an application pending, canceling an active credit card is not advisable. A lower debt ratio will significantly affect your financial status in lenders’ eyes and voluntarily close accounts, hurting your score.
If you can’t avoid closing your account, then ask the creditor first if they can convert it to inactive status to reduce its impact on your credit report and FICO score as much as possible. If they refuse, try moving the balance to another card or even transferring it to a zero-interest savings account until you are ready for the closure of the account itself. This will allow you a more manageable transition time for canceling a credit card properly.

In case I close my account, what other steps should I take?

If you decide that cancellation is inevitable, make sure that your payment records remain clean by resolving any outstanding balances immediately through settlement or charge-off.
Of course, you also can transfer any balances to another account with a lower interest rate. If possible, do not close your account suddenly without settling first, which will negatively affect your FICO score.

Is canceling my credit card a good idea?

It depends on the situation and whether or not you have any plans of opening new accounts soon. If you do, try resolving any outstanding balances immediately before closing an account to keep your payment history clean.
If you can’t avoid closing the account, find out from your creditor first if they can convert its status from active to dormant or transfer its balance elsewhere before finalizing everything for closure. Please note that closing an account is a serious matter, so be sure to do it right, as this will negatively affect your credit score.

Is there any way to cancel a credit card without hurting my credit score?

There are several steps you can take. However, if you have plans to open new accounts soon, it is best not to close your account. Closing an account affects the payment history, which makes up 30% of your FICO score (the higher the percentage, the more significant impact on your report).
If avoiding cancellation entirely isn’t possible, then make sure that outstanding balances are settled before closing an account. Also, get in touch with your creditor first and ask them if they can convert its status from active to dormant or transfer the balance elsewhere before canceling.
Jason Rathman
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