When is it a good time to close my credit card(s)?
Unfortunately, It's never a good time to close your credit card. I know that shocks you, HA! But that's how the financial system has evolved and is set up. I know you're thinking what the what? I can't close my own credit card down? Yep that's right. Oh, you can shut it off, but unfortunately your credit score will take a major HIT! I can't tell you the exact number because everyone's situation is different, but you will feel it! Usually the reasons for closing your credit card down typically are very good to you, but not to the issuer. In fact according to bank rate.com, 12% of Americans actually think the closing of credit card will help their score as opposed to hurting it. Time to change that line of thinking right now.
Using credit cards responsibly overtime can actually help you achieve a good credit score, and credit scores hold a major sway in our current economic system. Your credit score can affect everything from mortgage and your car loan interest rates. To even what you pay for your car insurance. Or even if you rent an apartment, it can affect your monthly payment, CRAZY! Unfortunately, most insurers use your credit score to help determine premiums that you will pay. We're talking about hundreds maybe even thousands of dollars back in your pocket every year for having a solid credit score.
Unfortunately closing your credit card can have long-lasting effects on your credit score. Closing your card negatively impacts a few key components that make up your overall credit health.
One of the major components of your credit scores your credit utilization rate. This means how much of your available credit are you actually using? The crazy thing is that you look like a million bucks to lenders when you have access to a lot of credit, but don't actually use much of it. When you close your credit card, you lower the amount of available credit that you have access to. Unfortunately, this not a good idea.
Length of your credit history is another important component to your credit score. The longer you have accounts in good standing, the higher your credit score goes. So what you actually need to do is use your card minimally and randomly throughout the year and make sure you pay it off at the end of the month. What you don't want is your credit card issuer to cancel the card on you due to inactivity. That wouldn't be good either.
So is it ever okay to close a credit card? The answer is yes, but it's a rare situation. If you absolutely cannot stop using credit cards, shut it down. Your lack of discipline will kill you financially. If you can't handle it then you must stop it immediately!
Another situation where you might want to consider closing your credit card is if your annual feeIs are higher than your rewards from the card. But before you do that check with your credit card company to make sure that you can't negotiate a better deal.
Unfortunately, the credit card industry is a rat race and we are the rats. We just need to outsmart the industry and make sure we get the cheese and not caught in the trap!
Because the world works this way today, you must pay your credit card bill in full every month. Do not get trapped!!!