Canceling a credit card can potentially have an impact on your credit, but it doesn’t necessarily mean that your credit score will be harmed. The key factor here is how you manage your credit overall and whether you have other credit cards or loans in good standing.
When you cancel a credit card, it can affect two main components of your credit score: your credit utilization ratio and your credit history.
First, let’s talk about credit utilization. This is the amount of credit you’re using compared to the total credit available to you. It’s generally recommended to keep your credit utilization below 30% to maintain a healthy credit score. If you cancel a credit card with a high credit limit, it could reduce your total available credit and potentially increase your credit utilization ratio. This, in turn, could have a negative impact on your credit score.
However, if you have low or no balances on your other credit cards or loans, canceling one credit card may not significantly affect your credit utilization ratio. It’s important to remember that paying down credit card balances, regardless of whether you’re canceling a card, can help improve your credit utilization ratio and overall credit score.
The second factor to consider is your credit history. The length of your credit history plays a role in determining your credit score. When you cancel a credit card, it may remove that account from your credit history, particularly if it was one of your oldest accounts. Losing a long-standing account could potentially shorten your credit history and impact your credit score.
However, it’s worth noting that closed accounts can still remain on your credit report for several years, typically up to 10 years. So even if you cancel a credit card, it may still contribute to your credit history for a significant period.
To minimize the potential impact of canceling a credit card, there are a few steps you can take. First, make sure to pay down any outstanding balances on all your credit cards, not just the one you’re planning to cancel. This will help improve your credit utilization ratio. Additionally, if you have other credit cards with long credit histories, keeping them open can help maintain a positive credit history.
Canceling a credit card may have some impact on your credit, but it doesn’t automatically mean that your credit score will be harmed. By managing your credit responsibly, paying down balances, and keeping other credit cards with long histories open, you can minimize any potential negative effects on your credit score.