Credit Card Cancellation

Credit card cancellation can be a wise step for some consumers but it should be approached carefully. There are some issues on canceling credit cards that can be helpful and there are some issues that can actually harm your credit score. Knowing these issues will benefit nearly all consumers who have and use credit cards.

It is no secret that many consumers carry too many credit cards, which is one of the main reasons people want to cancel some. Two or three cards are usually sufficient for most people with average incomes. So how do you decide which to cancel and which to keep?

A very good idea for those who have several credit cards is to sit down and make a list containing the name of each card and how much is still owed on each one, along with the interest rate that is currently paid on the outstanding balance. You cannot cancel a credit card until it is at a zero balance. You can certainly stop using cards, but they have to be paid off in order to actually cancel them.

Once you have all of your credit card information listed on one sheet of paper, you can review the list and look for some key components to help you make the best decisions.

Cards that have a zero balance and have not been used recently can go on the cancel list. You can cancel these credit cards by simply calling the number on the back of the card.

Credit cards with a low outstanding balance may be considered your next best option. If you stop using these cards and make a few double payments, you may be able to get these down to zero in a short amount of time. Then you can cancel these cards.

Some of the issues to think about, however, before you cancel your credit cards are include:

Canceling a credit card will decrease the amount of available credit that you have listed on your credit reports. This can hurt you in some cases. If you are planning to buy a home or automobile, you may want to keep the card until you have finalized those loans. The amount of available credit that you have is used in a ratio known as “available credit-to-debt”. The more available credit you have on the books the better.

Another issue to consider before canceling credit cards is to try to pay off and cancel those with high interest rates rather than those with good rates. Consumers who cancel credit cards with a lower interest rate may find it difficult later on to get the same deal. It is always better to work on the cards with the higher rates first as these will cost more in the long run.

Once you have canceled credit cards, it is a good idea to wait a few months and then order a copy of your credit reports to make sure that all of the information is correct and updated. This can be very important should you need to borrow in the future.

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