What to Know About Closing a Credit Card
Millions Are Holding on to Old Credit Cards
Millions of people are holding on to credit cards which are more than eight years old. There are a lot of reasons why many consumers don’t let go of credit cards. Some do it for sentimental reasons, while others simply forget about their credit cards or do not want to go through the hassle of closing them. People sometimes keep credit cards even if they have high fees or do not provide rewards.
Many consumers have paid down debt during the pandemic and are now wondering what to do with their credit cards. For people in this situation, there are a number of options.
Ask for a Product Change
Keeping an old credit card open can sometimes have benefits. It can keep utilization low, which is one of the factors that goes into a credit score. But keep in mind the annual fee that may be associated with the card: is it worth paying every year to keep the card open?
Before closing an account, it might be helpful to contact the credit card company to see if a better deal is available. There may be a card with no fees or with rewards. This is known in the industry as a “product change.” It simply means that details like the account number and available credit will stay the same, but fees and rewards may change.
Timing is Important
Timing is everything when it comes to closing a credit card. For people purchasing homes or applying for loans, it might be a good idea to wait to make big credit card changes until the deal closes. Lenders generally do not want to see many changes in a person’s credit score when underwriting a loan. When people close or cancel their old credit cards, their available credit can drop, which can cause their credit utilization to rise. This can impact their credit score.
People are paying down debt and re-examining their existing credit cards, leading many to close old accounts. While this could be a good financial decision, everyone’s personal financial situation is different. It’s important to do a little research and to think about timing.
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