You will have the urge to cancel a credit card after you paid all the balance you had on that account. This is a very admirable gesture towards the noble cause of responsible spending. You are one step towards better credit score if you cancel this credit card. Or not? Cancelling a credit card may sound great but it may actually cost you more harm than good.

Cancelling a credit card is never a good thing when it comes to your credit score. There are a lot of things going on between your credit card and your credit score that you actually don’t know about.  If you are thinking of cancelling a card or two, consider the tips in this guide. The following are a few things that you must know before you decide to cancel your credit card.


Keep the Older Accounts

It is better for you to cancel the accounts that are most recent because they will have a lesser impact on your credit score. A longer tenured credit card with a good payment history is a better choice to keep than a newer credit card. You want to take advantage of the positive effect of your payment history on your old credit card on your credit score.


Utilization Rate

Closing a credit card account will take a significant chunk off your overall available credit. This will certainly affect your credit score significantly especially if you are spender. This means that the more credit cards you have active the lower your utilization rate is. So even if you have no use for a credit card or two, it is still better to keep them around just to lower your utilization rate. Remember that this is one of the main factors in the calculation of your credit score when applying for mortgage.


Close The Accounts With Bad Terms

If you really have to close a credit card account to help you correct your spending habits, then choose the ones with terms that are starting to cost you more money in the long run. If you are having trouble coping with the payments for a card due to a number of circumstances, then that is the one that you must cancel. It is better to cancel a card than to negatively impact your credit score with missed payments.  If you are going to take a hit either way, then take the option with smaller and more manageable repercussions.

Cancelling a credit card account is bad for your credit score.  However, if keeping your credit card simply puts you in deeper financial trouble, then go for it.  You are more likely to save more money by cancelling now than waiting until the collection companies run after you.  The negative effects of cancelling a credit card can be remedied when you establish a solid payment history on your existing loan accounts.  As long as you keep a great payment history with your bills and the rest of your credit cards then your credit score will eventually recover.  If you can help it and if maintaining your credit card is not much of a financial burden, keep it.