Cancelling a credit card might seem like a simple task: You call, you cancel the credit card. But, in actuality, it could hurt your credit. There are a lot of things to consider before you cancel a card, and then how you do it.

Most people don’t realize that closing an account will have any impact on their credit, let alone a negative one. It happens because of the way our credit is scored. The five major factors that influence your credit score are:

  • payment history 
  • amounts owed 
  • length of credit history 
  • new credit 
  • credit mix

The How & Why of Cancelling Credit Cards

Cancelling your credit card could affect a lot of these factors. For example, closing a 10-year-old credit card will affect your credit history and your credit mix. Also, by cancelling the account instead of just cutting up the card, you’re erasing a large amount of unused credit from your credit mix — something that Equifax, TransUnion, and Experian will take note of. 

So if you get a new offer in the mail, with better rewards, and you want to cancel your old card and open a new one: My advice will most likely be to not officially close the old card. Just put it in your freezer, and don’t use it — and let the credit agencies be in awe of your judicious use of credit. 

Paying off  balances in full and on time — and keeping unused credit — increases your score. However, if you have trouble doing that, then it might make sense to cancel your credit card. Credit cards can be great for building your credit, but they’re not so great when they affect it negatively.  

At Judith Heft & Associates we can go through your bills with you and develop a holistic strategy to improve your credit. Part of that is looking at your credit mix with you. Contact us for more information.