If you are like most Americans, the chances are that you have three to four credit cards and are probably finding it a bit tough to keep up with the repayments. Or perhaps you have been working on your financial discipline, and you no longer need that many cards, which means you have to cancel some of your cards or maybe all of them.
Although canceling your credit cards seems like a good idea, it might have some disadvantages that you need to know about before you proceed. There are also benefits to terminating your credit card, thus the need to weigh the pros and cons so that you know which option best suits you.
Ways in which canceling your credit card negatively affect your credit
Note that if the card you want to cancel is paid off and has a positive payment history, terminating it will not hurt your credit. Experian, the credit reporting organization, holds your credit card information for ten years even after you terminate your account, whether positive or negative information.
It refers to the ratio between how much you borrow and how much you owe on your credit card, and it is a significant factor used to assign credit scores. You will hurt your credit utilization ratio if you terminate a card that owes balances with an active credit line. The best approach is to maintain your credit utilization below 30 percent to avoid hurting your credit rating.
It is another important consideration that determines your credit score. If you have a card whose debt you pay on time, terminating it means you will be skipping points that may improve your credit score.
Duration of credit history
If you have had a credit card with good payment history for a long time, terminating it might not be a good idea because it might negatively affect your credit score. It would be better to terminate a more recent card.
You can terminate some of your credit cards but terminate the recent ones that you do not need that much and retain the one you have used for the longest and have been paying off on time. You might still need credit, thus the need to retain at least one card. Also, consider better debt management practices to avoid being overwhelmed by debt.