Closing a credit card is more likely to hurt your credit score. If you close a credit card that has a balance on it, your credit score will probably drop of you close the card. This is because as soon as you close the card the credit limit of the card is reported to be zero. If you’re still carrying a balance on it your debt level is going to remain the same. 30% of the credit score cancellation is based on credit utilization which is the amount of available credit is that you’re using. Closing a credit card results in no available credit while still having a balance on it makes your credit utilization to more than hundred percent.
Even if your credit card has no balance on it your credit utilization may still increase. When you close a credit card the total credit available to you decreases. This increases the credit utilization ratio. Usually the crepitus advised to keep your credit utilization to about 30% of the total credit limit available to you.
If you have no other major credit cards are an amount that you close your only other cards are store credit cards, then your credit card score could drop. Mix of credit is another factor that is considered into the credit scoring model and constitutes about 10% of your credit score. It looks at the various different credit services such as loans, credit cards that you are using. The more the mix of credit that you are utilizing the better it is for your credit score.
Closing an old credit card account could impact your credit score in terms of credit age which forms about 15% of your credit score. But this won’t happen tells the time that’s the account drops of your credit score which may take a pill 10 years to happen since closed accounts that have been in good standing are kept on a credit report for a period of 10 years even after they have been closed.
There may come a situation when you need to close down a credit card but cannot find it. Many don’t have the credit card number you will not be able to simply call or write a letter to the lender in order to close a credit card. In order to close a credit card when you do not have a credit card number you must first call up the credit card company. It is usually advised to keep the customer care number of all your credit cards saved in a place where you can easily access it. They should typically be saved in a phone book or on your mobile phone is so that you can quickly get in touch in case of emergencies such as using the credit card or having your wallet stolen.
When you call the credit card company let them know that you have an account with them but cannot remember your credit card number. They may ask you to provide certain identifying information before they are able to check your account. This process may be more tedious in certain cases as the customer care centre may not be able to quickly access or find your record without the credit card number. It may also be against the policy of the credit card company to provide the credit card number over the phone.
In case the customer care representative does the view your credit card number you should write it down for future reference and then request a credit card to be closed. You should follow up this process in writing. Send your request letter by certified mail with return receipt requested. Include your name, address and account number in the letter and provide a reference to the concession that you had with the customer care representative where you requested to have your credit card account closed.
You may check your credit report in the next billing cycle to confirm whether the credit card has been reported as close to the credit bureau or not. Try and always make sure that there is no balance on the credit card before you close it.
The question is whether or not will you be charged and interest on the balance on a credit card accounts that has been closed. The answer is yes.
You will have to pay interest on any balance on your credit card even though the credit card account has been closed. The only thing that changes when you close a credit card account is that you cannot make any more charges on the credit card. You are still liable to pay off any debt of balances that you had on the credit card prior to closing.
Having a balance on a closed credit card account also affects the credit rating. When you close a credit card account the credit limit on that card is immediately reduced to 0. This decreases your total credit limit. But since you continue to have a balance on that credit card your credit utilization remains the same. This means that your credit utilization ratio will become higher when you close a credit card accounts that has a balance on it. While closing any credit card has a tendency to increase your credit utilization ratio, closing a credit card that still has a balance on it as a worse effect on the credit utilization ratio which is bad for the credit rating.
If you look at the number of credit cards that you have and try to decide whether you have too many credit cards do you answer may not be a simple one or one that applies to each in every person. Before you attempted to close down active credit card accounts you should know that closing and opening credit card accounts affects the credit score. Credit score uses information present on your credit report regarding the various credit cards you use as well as further information. What is the best number of credit cards that you should have is generally decided upon the impact that the credit cards are having on your credit score. There are however other factors that you can take into consideration as well. Listed below are a few of the general points that you should put through a checklist in order to determine what you should do with your credit cards.
Debt to Income Ratio
Generally lender will measure your debt to income ratio by calculating what your total limit of debt would be if you were to max out all your credit cards and your current income level. This means that the more credit cards you have the higher will be your debt to income ratio. With person who has a high debt to income ratio a lender may be more hesitant to extend further credit. This is because the lender may believe that you already have enough line of credit available to you which you could use to get yourself under a lot of debt. Extending you a further line of credit puts the lender at risk of losing money if you are able to handle the debt and default on the credit account.
Credit Utilisation Ratio
credit utilisation farms about 30% of your credit score. It is the ratio between the two credit that you utilise on your credit card and the total credit limit available. Typically the credit utilisation on any one credit card as well as all the credit cards jointly should be around 30% of the total credit limit. Having many credit cards is you the opportunity to increase your credit utilisation ratio by charging a high balance on the credit card. However, this does not mean that cancelling a credit card will help your credit utilisation ratio. In fact closing a credit card account will increase your credit utilisation ratio because the overall credit limit available to you will decrease with the cancellation of a credit card.
The two ways of managing your credit utilisation ratio is not only to have only the number of credit cards that you need but to also keep the balance on each credit card down to about 30% of the credit limit.
Mix of Credit
the credit score considers another factor that is known as mix of credit accounts in order to calculate the credit score. This forms about 10% of the total credit score calculation. So credit cards are not the only thing that is going to affect your credit score. Having three credit cards may have the same impact on your credit score as having 10 credit cards. Cancelling one or two credit cards may not have that much impact on your credit score if you have other positive information present on the credit report and especially other credit accounts of different kinds such as a home loan, personal loan, automobile loan etc.
Difficulty in Managing Credit Cards
as mentioned in the first paragraph credit score is not the only criteria by which you should judge whether you have too many credit cards or not. If you have a problem managing multiple credit cards then maybe it is time to downsize. Having more credit cards will make it all the more difficult to keep track of your monthly payments, interest rate etc. If having too many credit cards is proving hard to manage where you run the risk of defaulting on a credit card by missing a payment and forgetting to pay, then it may be better to cancel the extra credit cards that you do not use or need. Makes managing credit cards because there are too many of them may have an impact on your credit score if you happen to mess a payment. Since a single late payment can stay on the credit history for a period of seven years you can avoid this negative information by having just the number of cards that you can manage easily.
How many credit cards is enough
You can build a good credit history by using 1-3 credit cards. After that, you need to determine your own requirement. You should not have many credit cards if you are going to use them to incur debt. Have credit card for the purpose of utility and need.
What to do when your credit card gets cancelled.
A credit card provider is within his rights to cancel a credit card for reasons that he deems are appropriate and within the provisions of the federal law. A creditor may close a credit card when there is not much activity for a long period of time or when a consumer defaults on the payments.
A creditor may be a debt taking on closing a and an active credit card account because he can use the credit limit available on your card to extend somebody else’s credit limit who is giving him business. This is a decision that all creditors are faced with making and they prefer customers who are charging their credit cards and stands to make them more money rather than a person who has been inactive on their credit card For a long time. A credit card provider may inform you beforehand or may simply inform you after the credit card is close. He may or may not give you a chance to become active on your credit card account so that it does not have to be closed. Why you should be concerned with a credit card account getting can even though you have not been using it much in the past is because cancel credit card can hurt your credit scores.
The effects of a cancelled credit card on your credit score
the very first effects that are cancel credit card will have is on your credit utilisation. When a credit card account gets cancelled your credit utilisation increases. Credit utilisation is the total amount of credit available to you and the actual part of the credit that use. So if you had $5000 available in credit including all your credit cards and you get a credit card with $1000 limit cancel then your total credit limit comes down to $4000. If your overall balance on other cards was $1000 your credit utilisation increases from 20% to 25%. In certain circumstances cancellation of one credit card could make your credit utilisation go very high. The credit utilisation should typically be around 30%.
one way to offset the negative impact of a cancel credit card is by asking the other credit card providers to increase the credit limit on the existing credit cards. Usually credit card providers offer a credit limit increase on their own and based on information present on your credit history. Factors such as payment history, current income and the last increase in credit limit a custard before approving you for credit increase.
Another effects that a closed credit card is supposed to have is a shortening the length of your credit History. The length of credit history is the duration that it goes back into the years. This is also factor that has taken into consideration while calculating the credit score. If the credit cards that gets cancelled is one of your older accounts then this may result in the shortening of your credit history once this account falls off your credit report. However paid and current accounts that are closed remain on the credit report for a period of 10 years. Which means that the next 10 years this account will continue to show on your credit report and influence your credit score positively. So shortening of the credit history is something that you will be need not worry about for the next 10 years after the credit account has been closed if the account was paid and current when it was closed. However it is still something that you might consider for the future. If the credit card accounts that gets closed now are the only old accounts you have your length of credit history might suffer severely after 10 years on all of them drop of your credit report suddenly.
How to Handle a Creditor Closing Your Credit Card Account
if you find out in advance that your creditor is considering closing your credit card account you can speak to him and request it to be kept open by offering to make purchases on the account immediately. If the account is closed it will be more difficult for you to get it reopened. However if you have another credit card account with the same creditor the numeric question to transfer the credit limit to the existing credit card. While this step will not decrease the impact of closed credit card might have on your credit history age it will help you maintain the credit utilisation.
Preventing credit cards from closing the to inactivity.
The simplest thing to avoid a situation where the creditor closes your credit card account due to inactivity is that you keep charging the credit card periodically. Make up modest charge on the credit card every 2 to 3 months and pay the balance in full when you receive the statement.
Things you should consider before closing a credit card – Times when its better to leave a credit card open
Many of us are often faced with a situation when we want to cancel one of credit cards. We wanted with simply because we want to remove the butter in a financial lives and do not want to manage more credit cards and a have too. We come across better credit card offers all the time and may want to throw out the old redundant ones that we do not use any more. However it is also an established fact that closing a credit card account does have an impact on your credit score of a person. Any situations it may be wiser to just put away the credit card accounts that you are not using instead of cancelling it. You are a few things in a nutshell but you must consider before you decide to close and open and paid credit card account.
· You should consider leaving your credit card open and if it is your only credit card. A credit card that is paid it has no balance and is your only credit card should never be closed. Using a credit card moderately and responsibly is the best way and the easiest way to have positive data reported on to your credit report. Apart from that everyone should have at least one credit card for emergency use. You never know when you might need that additional credit.
· It’s the only credit card that has available limit. If it is the only credit card that has available limit for the other credit cards or maxed out and you must not close credit card account as you might find some need for it. Also having a credit card accounts that is not maxed out like the rest of the credit cards will tend to counter some of the negative effects that your other maxed out credit cards must be having on your credit score.
· If the credit card that you’re considering to close is one of your oldest credit cards then he should think about not closing it. This is because the length of the credit history of a consumer is a factor that is considered in the credit score calculation and counts for about 15% of the total credit score. Cancelling our credit card accounts that is one of your oldest credit accounts will shorten your credit history and have a negative impact on your credit score. Eckstein
· If the credit card has better terms and conditions then some of your other credit cards and you might consider retaining this card and using it instead of the other credit cards that offer you less favorable terms.
· If closing a credit card is going to raise your credit utilization to significantly more than 30% when you should consider not closing that credit card account. High credit utilization is the second most important factor used in calculating the credit score a person and accounts for 30% of the total credit score. Just putting the credit card away somewhere secure do you cannot use it and maintaining your credit utilization to around 30% may be worth the benefit to keep the extra credit card account active.
The right procedure to follow in order to close a credit card
Many of us are faced with the decision of closing a credit card every now and then. Not only do you do it to reduce the clutter in our finance management but simply because we have more cards than we need. In case you decide to close on a few credit cards here is a process that you should follow. It is quite simple to close a credit card but simply calling a customer care representative and asking him to close the credit card is not sufficient.
The first step that you need to take in order to close a credit card is to call the customer service jobs and take it of the credit card provider and inform you that you wish to close your credit card. If there are any outstanding balances on your credit card spending to must a dose of completely before requesting the closure. The credit card customer care sensitive may try and talk you into continuing your credit card account but if you have already decided about closing its then you should stay from with your request. The second thing that you must ask the customer care sensitive is to provide you with the address where you can physically send a request for your credit card closure by postal may.
Once you have this address you must send a letter requesting the closure including your name and address and account number through certified mail. Sending a letter and in fact any indication to your creditors through certified mail with return receipt requested means that you will have a record of the request being made as soon as roof of the date as to when the lender received it. Mentioned and refer to the conversation that you had with a customer care representative and request that your credit card account be closed. Keep a copy of this letter from your own records.
City, State Zip
Name of Creditor
City, State Zip Code
Re: Account Number: [Your Account Number (or Last Four) Here]
Dear Sir or Madam:
On [Date], I made a request by telephone to have my account closed. This letter confirms that request. Any updates to my credit report should reflect the account was closed at my request.
Please send confirmation the account was closed.
The effect on the credit score should not be the only reason why you contemplate closing or not closing extra credit card accounts that you have. For people who already have a good credit score it is generally advised that you should not worry too much about extra credit card accounts that you might have open even though they are unused.
Theoretically speaking closing down credit card accounts will raise your balance to limit ratio which might affect your credit score negatively. When you close down a credit account it certainly appears that job that has increased substantially as the amount that you owe has increased in comparison to the total amount of credit limit available to you.
But as long as you have a good credit score a temporary setback in a credit score which may be minimal at best will still not affect your ability to get credit in the future. What you can simply to its put away the unused credit cards safely in a place so that they do not get accidentally used in the future and create clutter and confusion in your monthly payments of your regular credit cards.
For people who have a marginal credit score closing credit cards might become important as even a small change in the credit score might make their credit score dipped below a certain threshold that the lender has four approving borrowers for a loan. The reason that a person with a marginal credit score might consider closing down extra credit cards is if that person cannot resist the temptation of charging these credit accounts and getting himself more into debt. You should make a decision based on what is best for you for a debt free financial future and not just based it on the impact on your credit score.
Another factor that might affect a person with a poor credit history and with too many credit cards is something quite the opposite of what has been said earlier about a high debts to balance ratio in better than a low one. While having several credit card accounts will help in keeping the debt to balance ratio high certain lenders may consider giving you a further credit a problem as they might feel that in light of the problems that you have had in your dreaded history in the past you already have a lot of credit available to you and it will be a bigger risk for them to extend you a further line of credit since you are more likely to be unable to pay your debt in the future.
Stopping the use of credit in any sort of way where you don’t have any loans that you pay off every month or use any credit card at all can have various different effects. Just stopping to use a credit account will not remove it from a credit history. If you have a positive credit account with no negative information it will continue to reflect on your credit report for ever even if you stop using that credit card account altogether. In order to remove it from your credit report you will have to close the account in which case it will be deleted 10 years after you close it.
In delinquent accounts will get deleted seven years after the date that the delinquency was first reported to the credit bureau. Any negative information in another account that is currently positive and active will be deleted seven years after the information was reported such as late payments.
The effect of stopping to use credit at all may be that your credit history may disappear altogether. Even if the positive accounts stay on your credit report is still might not have a credit score. Credit scoring model requires recent credit information to be reported to it in a timeframe that may range from six months to a year.
Lack of credit score and the lack of credit transactions in recent times may prevent you from qualifying for credit when you apply for it. This is because you are no longer demonstrating whether or not you are capable of handling a debt or not. The advisable thing to do is to keep using at least one credit card moderately and paint on the balance every month. You do not require many credit accounts or credit cards to build up a credit history. One or two credit cards can achieve what half a dozen credit cards can as long as you use them properly. In order to make sure that you have a good read it history and a positive credit score keep using at least one credit card.