Negative Affects of Card Holder Cancelling a Credit Card
If you ever want to cancel a credit card account, all you have to do is to call the phone number printed on the back of the card and ask the representative to close your account. However, canceling the card can have some negative effects on your personal finances and your credit score.
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Reduce Available Credit
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The biggest negative associated with canceling a credit card is that you no longer have access to that line of credit. You cannot use it to make purchases or rely on it as an emergency source of credit if you suffer a loss of income or an unexpected expense that needs to be paid right away. Even if you have other credit cards that you think you can rely on, remember that credit card issuers can cancel your account at any time, so keeping as much credit as you can will rarely hurt you.
Increase Utilization Ratio
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If you carry a balance on any of your other credit cards, canceling a card without a balance will increase your credit utilization ratio. This ratio compares your total credit card balances to your total credit card limits. The lower your ratio, the better your credit score is. Therefore, canceling a card and removing its credit limit from the calculation can cause your utilization to rise and your credit score to drop.
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Lose Credit History
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When you cancel a credit card, the information about that account can eventually fall off your credit report. Credit bureaus generally remove the information after an account has been closed for 10 years. Therefore, even though a closed account won't affect you right away, it might affect you later. If the account was your oldest or had a stellar payment history, your score could drop when it falls off your report.
Considerations
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Even though some negatives are associated with canceling a credit card, it can be a wise decision for some people. For example, if your card has a high annual fee and you have plenty of available credit on other cards with no annual fee, you might want to cancel the card with a fee. In addition, if having a particular card tempts you to spend more than you can afford, it can be wise to cancel that card to keep your spending under control and prevent yourself from accruing debt at high interest rates.
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