Is Closing a Credit Card Bad?

Closing a credit card may seem like a simple matter, but you should be aware of the consequences of this action. They can be significant and even worse than if you didn’t cancel your credit card. Keep reading to learn about what problems you can face after closing your card. 

Does Closing a Credit Card Affect Your Credit Score?

Think carefully before closing your credit card because it can significantly hurt your credit score. Credit is a vital part of your life. It plays an important role when you send a loan request, want to rent an apartment or apply for a job. Thus, closing a credit card can negatively impact many areas of your life. 

Increasing Credit Utilization Ratio 

One of the essential elements of your credit score is the credit utilization ratio. It shows the relation of your current sum to your credit limit. The lower your credit utilization ratio, the higher your credit score. Most financial experts recommend keeping it below 30. Closing a credit card means reducing your current amount of credit. It causes increasing in your credit utilization ratio and damaging your credit score. 

Reducing the Length of the Credit History 

Payment history makes up 15% of your credit score, and closing your credit card account can negatively impact it. However, the credit history will not be immediately removed from your credit report after closing an account. It can stay there for up to 10 years, so you will not see a negative impact right away. 

Can You  Avoid Damaging Your Credit Score? 

Although it is recommended to keep your credit card accounts open as long as possible, sometimes, their closing is necessary. There are several ways to cancel a credit card without damaging your credit. One of the most popular options is to pay off your accounts. You can avoid hurting your credit score if the balance of your closed credit card account is $0.