You need to understand something from the beginning: canceling your credit card will affect your credit score yes or yes. The important is that We will tell you how to do it without that damage being more serious just grab your scissors and cut your plastic.
Before any decision making, it is important that determine how valid or not it is that you close your credit card. If you are going to hurt your score, you are going to want it to be worth it and not just for a simple whim of not having so many plastics in your wallet. For example, one of the most valid reasons to close an account is because you no longer use that card and it has an annuity.
After weighing the pros and cons of canceling your credit card, we recommend that you look at other alternatives. Approach the issuer of your plastic and look for solutions that they can offer you other than the account closure. If your needs have changed, perhaps what you need is a card change rather than a cancellation.
If after all this, you still consider that it is best to cancel your credit card, then we will tell you what you should do to avoid damaging your credit score too much.
Considerations before closing your credit card
When you cancel a credit card it is irremediable that you affect your score, however, the damage will depend, to a large extent, on the length of your credit history and the rate of credit utilization.
The older the credit card you want to cancel, the more damage you can expect to your score. Credit history is based on how long your open lines of credit last. For example, you opened your first credit card 20 years ago, then another at 10 years and at 5 years. You have a history of 20 years thanks to your first card, but if that is the one you decide to close, then your history can be drastically reduced to just 10 years, which would limit you to access a mortgage loan, to name a few.
You probably won’t see the effect on your credit score right away, as closed credit accounts still contribute to your FICO score until they disappear from your credit report, which could be 10 years from now. Closing an old credit card makes up 15% of your FICO credit score.
In short, if you are going to close a credit card, we recommend that it be the most recent.
Secondly, credit utilization ratio represents 30% of your FICO credit score. When you close a high-capacity credit card, you increase your credit utilization rate, which affects your score. The recommended credit utilization rate is between 10% and 30% of your capacity.
In the same example, in your three cards you have a credit limit of $ 10,000 in total, because in one card you have $ 2,000 as a limit, in another $ 3,000 and in the remaining $ 5,000. Of those $ 10,000 available, you have used $ 3,000, that would mean a 30% credit utilization rate.
If you decide to close the $ 5,000 account, you would be reducing your creditworthiness by the remaining $ 5,000. Here comes the problem, your occupancy stays at $ 3,000 until you pay it in full, so your utilization rate would increase to 60%, which it leaves you very badly off in your history and your score.
How to close your credit card
After taking care of your history and your credit utilization rate, you can now determine which card is the one that will least affect your score when you cancel it. To do so, you must follow the following steps:
1. Pay your balance in full. You cannot cancel any card where you have an outstanding balance.
2. Redeem your rewards. If it is such a card, it would be a waste if you did not take advantage of them. There you also lose money.
3. Call your sender. Call the bank number of your card and request the cancellation. The representative will aim to convince you with promotions to keep your credit card. You don’t give in.
4. Send a cancellation letter for protection. This is optional and just in case you want to be sure to notify your issuer that you want to cancel your credit card account. Ask the representative who attended you for the postal address to send this registered letter about your cancellation.
5. Check your credit report. To ensure that there are no errors with your account and that the cancellation was successful, check your credit report from at least one of the three credit bureaus in the United States (Equifax, Experian and TransUnion) at annualcreditreport.com. Common errors that can appear after a card has been canceled include an account that appears as open and active even after it is closed, or that the notation “closed by issuer” does not appear on your credit report. It should be clear that the creditor closed the account.
6. Dispose of your card safely. Now is the time for you to cut or shred your credit card, the important thing is that the numbers on the plastic are unrecognizable and the magnetic tape completely damaged.
You may also like:
• 4 aspects that indicate that a credit card does not suit you
• Take advantage of your credit card: the 5 basic tips to have better control of your debt
• How do banks calculate your credit card debt? Do it yourself and pay less interest