Are You Sure You Want to Cancel Your Credit Card?

Some consumers erroneously believe that by canceling their credit cards they will erase bad credit from their credit report.  Some believe that before applying for a car loan or mortgage, they should cancel credit cards to make things look better on their report.  Still more cancel their cards in order to avoid the temptation to over spend.  This reasoning is all seriously incorrect and a really bad idea.

In part, your credit score is determined by how long you keep your credit cards.  The longer the period of time you hold a card, the longer your credit history is extended.  If you have a long credit history, you are considered a better risk by lenders in comparison to having a shorter history.

If you are considering buying a car or a house, or borrowing money for any purpose at all, canceling credit cards will have a negative influence on your credit report.  At the very least, keep the cards you are thinking about canceling until after your loan is finalized.

Canceling a credit card does nothing to improve your credit score or “how your credit looks.”

It is a better idea to hang on to your credit cards.  It is even better to keep them in use.   You can do this by making nominal charges against them.

If you have superstore, department store, or gasoline retailer credit cards and are considering canceling them because you can use your major credit cards instead, reconsider.  Most of these cards do not charge fees and having a varied combination of credit cards is looked with favor by the credit bureaus.

If you, nonetheless, determine that you are going to cancel a credit card, never cancel one with an outstanding balance.  Pay the balance in full prior to canceling.  If you make your payment after canceling the card, it will be considered a collection and it will be determined that you defaulted on your card.  Defaulting on your credit card will drop your credit score even lower than a credit card cancellation.

Don’t cancel old cards.  This goes back to maintaining a long credit history.

If you can avoid canceling a credit card, it is in your best interest to keep it.  However, if you have no other choice because of high debt or minimum payments, do your research.  Don’t just cancel a card arbitrarily or because of some misperception about the issuer.

If you have cards issued by a small, little known bank, consider canceling them as opposed to canceling those from the major banks.  Major banks are given better consideration from the credit bureaus than the smaller, less consequential banks.