You may want to cancel a credit card if these factors apply to you.
- Closing a credit card could negatively affect your credit score.
- Despite that, there may come a point where it’s worth ditching a credit card.
There’s a reason credit card holders are often advised to keep their cards, even those that aren’t used much. Closing a credit card could actually hurt your credit score in a number of ways.
First, an important factor in that score is your credit utilization ratio, which measures how much of your total credit limit you’re using at one time. If you close a credit card, you can drastically reduce your total credit limit, making it difficult to keep that ratio in favorable territory.
Another problem with closing a credit card is that it could affect the length of your credit history. If you close a long-standing account, the average length of your open accounts could eventually drop, which is not good for your score.
But let’s say you have a credit card whose spending limit isn’t that generous and you haven’t opened it for a long time. In that case, closing it could result in minimal damage to your credit score. If that’s the case, here are four signs that a certain card is worth getting rid of.
1. Charges an annual fee but gives you little in return
In some cases, annual credit card fees can pay for themselves. Let’s say they charge you $95 a year, but in return, you can rack up $500 in cash back and rewards, instead of the $250 you’d get with another card. That alone makes your fee worth it. But if you’re paying a fee for a card that doesn’t give you anything extra, then there’s no point in keeping it.
2. Their rewards program leaves a lot to be desired
Many credit cards these days offer opportunities for additional rewards or cash back. If you have a card that doesn’t, or limits you to 1% cash back across the board with no opportunities to earn bonus cash, then it’s a card you don’t want to hold on to. Similarly, if your card comes with rewards that expire quickly, you may want to switch to one whose rewards schedule is much more flexible.
3. Charge a high interest rate
In an ideal world, you would pay off your credit card balance in full each month and avoid accruing interest charges altogether. But we all know that this is not always possible. If you have a credit card that charges much more interest than any other card in your collection, you may want to close that account.
4. Your customer service is poor
When you’re having trouble with your credit card, whether it’s a billing issue or a fraudulent charge, you should be able to easily contact a customer service representative. And once you do, that person should be in a strong position to help you solve the problem at hand. If that’s never your experience dealing with your credit card issuer, it’s a sign that the card in question isn’t worth keeping.
Often, it makes sense to hold on to a credit card for the sake of your credit score. But if you have a recently opened account that isn’t working out well for you, it may be time to let go of that card, especially if these signs apply to you.
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