Thinking of canceling a credit card? Bargain Babe says you should reconsider. She’s teamed up with CreditCards.com again to let you know there are side effects when you break up with your credit card.
If you need some time away from your credit cards, consider going credit card less. See how Bargain Babe prepared to go credit card less for one month to get inspired. You’d be surprised at how much you can save by using only cash. Those impulse purchases may stop looking so appealing when you can’t just swipe your card. Don’t forget! Prevent fees by paying off your credit card debt even when you’re not using plastic.
Your score is based on 5 factors:
- Payment History
- Amounts Owed
- Length of Credit History
- New Credit
- Types of Credit Used
Canceling your credit card impacts two of these five factors:
- Credit History – which is basically how long you’ve had card open
- Amount Owed – which is your debt compared to your total credit limit
There are good reasons to cancel a card, like divorce or identity theft. Other times it may be better to just stop using the card. Like when the perks change, if the limit is really high, or if you’ve had the card a super long time. If you can choose, cancel a new card with a low limit. Your credit card will take a hit but not permanently.
How much will your score drop? It depends on not just one card, but the big picture. Hike up your score by making payments on time and keeping your balance low relative to your limit.
For this reason, dropping your credit card should only be a last ditch effort. If you can find another way, don’t cancel the card. It can be tempting to cancel credit cards to get rid of the temptation to buy, but building good credit is also important. You will need a good credit score to get a car loan, a mortgage, insurance, and more. You should keep this in mind before racking up debt or being irresponsible with credit. Instead of canceling cards, try to only use them in emergencies or set a monthly limit to cut down on spending.
Have you ever cancelled a credit card?