Today we can do so many things with a just a tap on a phone screen, or click on a computer key, so it is easy to understand why some people imagine that closing credit cards can also deliver instant satisfaction. Isn’t this the easiest way to cut out overspending and improve credit scores? A closer look shows that the picture is more complex. The decision to close a credit card should only be taken so lightly.
1. Don’t Close Old Credit Cards with Good Histories
The offer of a new credit card with a very low interest rate and no annual fees is certainly worth considering. On the surface the card holder has everything to gain from closing the old card and taking out the new card. However, if the old card carries with it a long and positive credit history the loss of this good credit information can eventually reduce this person’s credit score. If they have a very high score they might be able to let this pass, but if it puts them into a poor credit bracket the price could be paid in terms of harder to get and most expensive loans. Is it worth it?
2. Don’t be Left with Just One Credit Card
Even if all the calculations show that replacing an expensive credit card with a cheaper credit card is going to immediately save money this doesn’t mean it is a good idea. Financial experts recommend holding at least two or three credit cards. Why? One of the factors that affect an individual’s credit rating is the percentage of the debt available to them that is utilized. Ideally this figure should be under 30% and the more credit cards available the greater the chance of a positive debt utilization figure boosting their credit score.
3. Do Close Unneeded Credit Cards
After pointing out how having multiple credit cards can improve credit ratings, it might seem strange to suggest closing surplus cards but there is really no contradiction. Having two or three credit cards can help credit scores but keeping a larger number of credit cards is often not justified. Why continue paying for these cards, and at the same time provide more opportunities for identity theft perpetrators to strike?
One idea is to have one credit card set aside for everyday personal use, another card for business use and a third for vacation or emergency use. Additional cards can be closed, especially those cards with the highest interest rates and annual fees.
4. Do Take a Gradual Approach to Credit Card Closing
Closing unneeded credit cards gradually is the best approach to follow. Although it is tempting to close all these unwanted cards in one shot it is hard to know for certain how this is going to affect your credit score. By closing the cards over a period the owner is able to monitor the effects on their credit card caused by removing credit history and changing the unused debt ratio.
5. Do Negotiate with the Issuer before Deciding to Close a Credit Card
View the decision to close a credit card as a potential opportunity to get much better deals. Closing a card is going to deprive the bank or other issue of the profits it brings them. In this situation they are frequently open to bargaining. For example, they could agree to reduce that annoying annual fee or perhaps cancel it. You can only gain by challenging them to offer you a better deal in return for keeping the card. Since finding new customers requires more expense and effort than keeping existing customers, the card owner has an advantage in these negotiations.
6. Don’t Assume Closing a Credit Card Takes a Few Minutes
Some people mistakenly believe that all that is required is to cut the card in half and they are finished with it. First of all it is essential to contact the card issuer’s customer service department and formally ask to close the card. Usually they are going to discourage closing their card but if the owner perseveres they must agree. Any outstanding debts on the card must be paid off, and so it could easily take over month to complete the closure. Once the closure process has begun cut through the number on the card as an extra precaution against somebody stealing the card and reopening the account.