Before Canceling Credit Cards Consider the Negative Impact May 8
With the average American now carrying thousands of dollars in high-interest credit card debt, there has never been a better time to cut up the plastic and stop racking up bills. But before canceling a credit card it is important to realize that there can be negative consequences in terms of your credit rating or credit score.
Having an open line of credit or a credit ceiling that you do not use – or only use a small portion of – is one of the best ways to bolster your credit rating. That’s because when lenders see that you have credit – or the ability to borrow – but you also have enough discipline not to take full advantage of it that conveys to them that you are an exceptionally responsible consumer. Officially canceling a credit card account by contacting the credit card company and asking them to close your account will essentially erase you from their records. Your open line of credit or opportunity to buy things and charge them or borrow cash advances against your credit card is eliminated. That may be helpful in terms of keeping your from borrowing money that you cannot afford to repay, but there is a better way to deal to approach the situation.
Instead of completely closing your account, it is advisable to instead just pay your balance off and keep the account. You can even destroy the credit card that you carry in your wallet or purse if it makes you feel better, as long as you keep track of the account numbers and monitor the activity in the account. Your card company will keep sending you bills each month, but if you have paid off your account you will not owe anything. Meanwhile, if a lender or bank checks your credit they will see in your credit report that you have credit that you are choosing not to use – and that because of that your credit score is higher than it would be if you had actually closed the account completely.