Is closing a credit card bad? Does canceling a credit card hurt your credit score? The answer is revealed in this video! PLUS tips on what to do based on your situation! Click “Show More” to see Ad Disclosure.

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QUESTION
Does closing a credit card hurt your credit score?

ANSWER
Yes, it can. But depending on your situation, it may not matter.

CREDIT SCORE BASICS | CREDIT SCORE EXPLAINED
To remember the primary credit score factors, simply memorize PHURLEMINA.
PH = Payment History | 35% of your credit score
UR = Utilization Ratio | 30% of your credit score
LE = Length of Credit History (aka Average Age of Accounts) | 15% of your credit score
MI = Mix of Accounts | 10% of your credit score
NA = New Accounts | 10% of your credit score

WHEN YOU CANCEL A CREDIT CARD…
a. Payment History is LOST … lowers score
b. Utilization Ratio INCREASES … lowers score
c. Length of Credit History DECREASES … lowers your score
d. Mix of Accounts MAY CHANGE … but little to no effect on credit score
e. New Accounts … NO EFFECT

BUT…
Nothing will actually happen for 7-10 years.

HERE’S WHY…

- Closed accounts in GOOD STANDING remain on your credit report for 10 years and will continue to help your credit score during that time.

- Close accounts in BAD STANDING remain on your credit report for 7 years and will continue to hurt your credit score during that time.

SO EVEN IF…
You close a credit card today…
It won’t have any effect today.
But it may have an effect several years from now.

HOWEVER…
Closing a credit card DOES NOT affect everyone the same way.

3 SCENARIOS…

Scenario 1: You have less than 2 years of credit history and have a small amount of credit compared to how much you spend. EFFECT: Canceling a card may hurt you the most.

Scenario 2: You have 2-4 years of credit history and have a moderate amount of credit compared to how much you spend. EFFECT: Canceling a card may hurt you a little.

Scenario 3: You have 5+ years of credit history and have a large amount of credit compared to how much you spend. EFFECT: Canceling a card will likely have no effect.

WHEN CANCELING MAKES SENSE
1. Your card has an annual fee, and you don’t want to pay it.
2. You’re in a difficult financial situation and need to carry a balance for a period of time, but the interest rate is high.
3. You’re consistently overspending.
4. You have too many cards & it’s stressful to manage them.

WHEN KEEPING IT OPEN MAKES SENSE
1. It's the oldest account on your credit report.
2. It has a large credit limit.
3. You only have 1-3 cards total, so closing one could have an outsized effect on your credit report.
4. You no longer use it for spending, but value the benefits.

ALTERNATIVES TO CANCELING
1. If the card has an annual fee, ask the bank for a retention offer or to waive the fee entirely for the next year.

2. Consider a product change by asking the bank to switch your card to another card product. This usually keeps your account open & all other factors intact, but you’ll have a different card to use going forward.

3. Simply keep it open & use it about once every 6 months to keep it active (otherwise the bank may close the account due to inactivity).

MY RECOMMENDATION
- Keep EVERY CARD open for at least 1 year.

Why…?

Because banks could take back the welcome bonus or freeze / close your account if they believe you’re gaming the system.

Disclosure: This site is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as CreditCards.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. Mark Reese is not a financial advisor.

#creditscore #creditcards101 #creditcardsforbeginners

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