Credit Card, I wrote an article a while ago that the benefits of Citi Double Cash have been deleted a lot, but the content of the benefits has changed for credit cards, and new cards that are more advantageous to me are coming out, so this In some cases, you may cancel the card you have used up to. I was asked if canceling a credit card would affect my credit score and how to successfully cancel a card I’ve been using for a long time. This time, I will summarize what to think about when canceling a credit card.
Impact on credit score?
Certainly, canceling your credit card can result in a poor credit score.
For one thing, the Credit Utilization Ratio affects the ratio of how much credit you are spending to your Credit Available limit. The lower the Utilization Ratio, the better the credit margin, and the higher the higher, the worse the debt is near the limit. This is the factor that determines 30% of the FICO score.
For example, if you have 3 credit cards and you have a limit of $ 10,000 each, of which you have a total balance of $ 10,000, the Utilization Ratio is $ 10,000 ÷ $ 30,000, which is 34%, but if you cancel one card, it will be $ 10,000. ÷ $ 20,000 will increase to 50%.
Since the balance of the credit card is paid out every month, even if the credit usage amount should be zero, it is not always the case on the credit report. , The balance when the credit company reports to the credit bureau, so it depends on the timing of the report, but in most cases the balance is not zero. Therefore, if the credit limit, which is the denominator, is lowered due to the cancellation of the card, the Utilization Ratio will rise unexpectedly.
The other affects the length of Credit History . This is the factor that determines 15% of the FICO score. Credit History lengths are calculated from the oldest credit account to the newest. The longer you have an account, the higher your score will be. If the credit card you cancel is still new, the impact will be minimal, but if you have a long-lived card, the impact will be large.
However, canceling a credit card does not mean that the information will be deleted from the credit report immediately, and if the information after cancellation is also positive (no payment delay), a record will remain for 10 years. .. Negatives (payment delays and problems) will remain for 7 years. As long as the record remains, it seems to be reflected in Credit History, so I don’t think there is much need to hesitate to cancel for this reason.
Things to consider
It’s strange that you can’t cancel your credit card because you don’t want to lower your credit score, and in most cases it’s okay to cancel without being so nervous. Especially for the following people, there should be no problem even if you cancel.
I have no plans to take out a loan for the time being
Credit scores aren’t something you always have to worry about, but something you should pay particular attention to when you need a credit score. If you don’t plan to make big purchases such as mortgage, refinancing, or car loan, it’s okay to cancel your credit card and temporarily drop your score by tens of points.
On the other hand, when you plan to make a big purchase with a loan, refrain from making too many changes to your credit score, including not only canceling your credit card but also applying for a new card. It is safer to stay. Let’s wait until the loan procedure phase is complete.
Credit scores are also checked for car insurance, mobile phone service applications, and screening for renting an apartment. Your credit score may not be as significant as applying for a loan, but it’s still a good idea not to cancel when you apply for something.
Already have a good credit score
If your credit score is already good enough, the impact of credit card cancellation will be temporary and minimal. Higher credit scores are better, but depending on why your credit score is used, above 740 makes no big difference in the benefits you can enjoy. In many cases, there is no problem just because 770 has dropped to 740, and even if it drops, it will return immediately if you live a life that maintains the score as before, so there will be no impact in the long run. Most of the cases.
On the other hand, if you’re still building a credit score, you may want to consider holding it without canceling until your score is high enough, unless your annual membership fee is high.
How to cancel
If you decide to cancel, first use up your cash rewards and points. If you can reach the next stage of rewards with a little more use, I think it’s a good idea to use that much to maximize the rewards. Use up the benefits as little as possible.
In addition, if you already have a travel fee or rental car paid with that card and have travel insurance or rental car insurance, or if you have purchased electronic devices and the Extended Warranty is alive, those Waiting for cancellation until the compensation period has expired is also a good consideration.
When you’re ready to cancel, it’s easy to cancel. A long time ago, most cancellations were in writing, but now you can also cancel with Chat (depending on the card company, of course). If you don’t have Chat, you can call us.
In most cases, even if the balance is still available at that time, it will be accepted for cancellation (in the sense that it will no longer be used). Tell them you want to cancel, cancel your card, then continue to pay with your previous payment format (such as Automatic Bank Transfer) if you have a balance, and your account will be officially closed when your balance reaches zero.
At this point, it’s important to make sure it’s closed. If it should have been closed but it was open, it may not be noticed even if it is abused. Make sure to check it properly as it may adversely affect your credit score. The most orthodox way is to make a written request to close your account and get a document that you’re sure it’s closed, but nowadays you can also email it or log in to your account online. In many cases, you can confirm by saying “Canceled”. Eventually, after a while (a few months later as it won’t be reflected immediately), you’ll want to check your credit report to see if your account is closed.