Why You Should Think Twice Before Canceling Your Credit Card

To begin with, yes, closing a credit card account can have a negative impact on your credit score. At first glance, this may seem the quickest and the most appropriate solution to the question of credit card debt or high fees. But in fact, sometimes it may even worsen the situation. Cancellation wounds such factors as credit utilization ratio and average accounts age, which, in turn, have a direct impact on credit score.

Bankrate has recently conducted a credit card cancellation survey with 2,301 American respondents owning credit cards. The survey revealed that 61% of cardholders in the U.S. had canceled at least one credit card and 37% – two or more.

Cardholders are not Aware That Credit Card Cancellation Affects Credit Score

Despite the active promotion of financial literacy in the U.S., it turns out that only less than half of the interviewed, namely 42%, understand that canceling a credit account is not for the better, while 15% are confident that it brings no aftereffects at all. What is more, 13% believe that this action makes their score grow, and 12% of those who have already canceled a card admit that the reason for that was their desire to improve their credit history. 29% confess they simply have no idea whether there can be any consequences or not.

Most Cardholders Scrap Their Credit Cards Easily

Why are people so easy to part with their credit cards? According to the poll, 40% of the U.S. cardmembers close their cards simply because their debt has been finally paid off, and 36% decide to take this move as they rarely use their card. For other 36%, the current interest seems too high, as well as annual fee for 28% of the respondents. 18% try to avoid overspending or debt by these means and 17% are not satisfied with the rewards program.

Older Generations Cancel Credit Cards More Often

It would seem the older, the wiser. But surprisingly, it is younger cardholders who adhere to healthier credit behavior. Only 50% of millennials have resorted to a card cancellation explaining it more often with poor rewards, in contrast to 61% of Gen X card owners typically complaining of high annual fees and 72% of baby boomers whose common reason for canceling is that they don’t use their cards enough.

Credit Card Cancellation Is Not What You Really Want

No matter how tempting closing of a credit card may seem, always think first that it may produce an adverse effect. Of course, if you are already deeply in debt and have a hard time controlling spending, perhaps canceling is the only proper solution. However, in most other cases it’s better to abstain.