Having a good credit card makes your life easier when it comes to qualifying for low-interest rates on credit cards and loans. Good credit facilities help to build up rental applications, utility hook-ups, low-rate auto insurance, and setting up phone services. Some of the potential employers take a closer look at the history of your credit card before they decide to hire you.
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The Biggest Advantage of Closing a Credit Card
The biggest advantage of having a credit card is that you can shop now and pay for your purchases later and it’s like having a personal credit card that you can dip into anytime. Another perk of closing a credit card is that you can get reward points for shopping. Regular use of credit cards helps you to establish your credit score.
While credit cards offer an array of benefits and have more credits than you. Moreover, the improper management of various credits can affect your financial health. On the other hand, if you are having a hard time tracking and managing your credit card debts, then the best way to move forward is to take a closer look that you no longer exist.
The Main Function of Credit Cards
Although the main function of credit cards is to help you and establish credit having more cards than you need. It is observed that credit card is not well managed and can compromise your financial health. You may find the best way to avoid further debt to close these cards and in this article, we are going to have a look at the pros and cons of closing a credit card.
Pros of Closing a Credit Card
First of all, let’s have a glance at few pros of closing credit card and these are as follows:
1) Closing Credit Card Means Less to Manage
Closing a credit card helps you to simplify your financial life and instead of carrying a wallet full of cards, you could pare down just to one or two. This means that fewer monthly statements to review, fewer monthly payments to make, and less confusion over redeeming and earning credit card rewards.
Fewer credit cards make it easier to keep up with what you are spending each month. In other words, it can also be a good thing for your budget.
2) Less Chance to Go into Debt
Another positive advantage of having fewer credit cards is that there is less room for you to create debt. It may be tempting to use them to spend if several open accounts with zero balances. You can also limit the number of available credit cards you have to make purchases against by limiting your card options.
3) Credit Cards Help You to Save Money
Keeping a credit card that has annual fees make sense. On the other hand, if you are using it for generous rewards or take advantage of other valuable benefits and if you have a credit card, that sitting dormant closing allows you to avoid paying that fee. You should get rid of a card that charges a higher APR could also be a good move.
Especially it is very beneficial to close a credit card if you carry a balance month to month and want to save on interest.
4) Credit Score Impacts May be Less
Closing a credit card can impact your credit scores and then you will jump into the cons side. But the scale of the impact may depend on the age and limit of the credit card in question and closing a newer card slowly, for example, may not affect you as closing one of your oldest credit cards.
5) Prevents the Identification of Theft
You also have multiple credit cards in your wallet that you no longer use and that does not mean hackers cannot access them. Even though the chances are slim, hackers can steal your card information, use it illegally, and avoid falling victim to credit card identity theft and you can close cards that you don’t track regularly.
6) Help you Control Extra Expenditures
One of the biggest reasons why many people close a credit card account is due to temptation. Moreover, having a credit card plunges into expensive purchases but when you choose a credit card, then you cannot spend on it thereby avoiding unnecessary expenditures.
7) Want to Keep Track of Fewer Cards
You may consider closing the card that affects your credit score least and you are currently juggling several credit cards. Moreover, such as one with a small credit card limit or one you have had for the least amount of time.
Cons of Closing Credit Card
Now let’s have a look at the cons of closing a credit card.
1) The Credit Age of Your Card May be Affected
Credit age an important role in the calculations of credit score and as a general rule older accounts can help your credit score since they demonstrate a long history of using credit. Therefore, shutting down your oldest credit card negatively affects your credit card age and the shorter age of credit card now results in the loss of credit score points.
2) Credit Card Rewards May Go to Waste
Miles, earning points, or cashback helps you to save money. It also helps you to earn points or money if you can apply them to travel, purchase, or savings. On the other hand, credit cards allow keeping your rewards. It also continues redeeming after you may close your account but others may not.
It also means losing your rewards when you decide to close a credit card you first need to consider how you can redeem them and otherwise you might be letting them slip through your fingers.
3) Reduces the Limit of Available Credit
You miss out on rewards, loyalty points, and other perks you earn using credit card when you choose to close credit card and your overall credit limit is reduced before losing these perks.
4) Leads to Drop Point Closing Credit Card
Closing a credit card may reduce your debt and it takes a credit score in the short term and your credit history plays a crucial role in deciding your credit score.
The alternative to this is to maintain your credit by keeping 0 outstanding balance and you have now the largest credit limit that helps you build a higher credit score.
Make sure that once you decide to close a credit card must look at the pros and cons of a closing credit card.