What Happens To Credit Score When You Cancel A Credit Card | CreditShout

What Happens To Credit Score When You Cancel A Credit Card

By Dan Rafter / November 27, 2019
What Happens To Credit Score When You Cancel A Credit Card


Credit Shout may collect a share of sales or other compensation from the links on this page.

Credit scores play a key role in your life and what that score is will determine a lot as it pertains to everything related to your credit.

When you have a great credit score, you can borrow money as needed.Even better, when you have great credit, you get the best rates so you pay a lot less.When you have great better, you get better credit card offers.

When you’re first starting out and trying to build your credit, also those trying to rebuild their credit, the credit card offers are not always good.In many cases, we have to settle for a high APR credit card or a card that doesn’t offer what we want.

As time passes, our credit scores improve and we get better credit card offers. If you’ve been building your credit for 5-10 years, you likely have credit cards that are outdated. Perhaps, you have a few credit cards that you don’t use as much because you’ve added better credit cards over the years.

If you’re in that scenario, does it make sense to cancel a credit card?

This is a great question and like most questions we get, it depends.Everyone’s credit scenario is different and canceling a credit card can affect all of you in different ways.Before you decide to make the call to cancel these credit cards, we recommend reading this article so you can protect your credit score the best way possible.

Related Reading: If You Are Trying To Establish Credit History, What Is A Good Place To Start?

What Happens If I Cancel A Credit Card?

First things first, we rarely recommend canceling a credit card.When we do recommend getting rid of a credit card, it’s usually because:

  • High APR
  • High Annual Fees
  • No Credit Limit Increases

Now, there’s a few facts you should know before you cancel your card.

  • Credit Limit – When you cancel your credit card, you’re going to lose that credit limit.While a $500 credit card may have little impact, a $5,000 credit limit can have a big impact on your credit cards.

Let’s use an example.Sarah has $10,000 in total credit.She has a card that she wants to cancel, it has a $1,000 balance.If she cancels this credit card, she’s losing 10 percent of her credit limit.

Carl is in a similar scenario but he has $20,000 in total credit.He’s upset he hasn’t received any credit limit increases and wants to cancel one of his credit cards.This card has a total credit limit of $10,000.If he cancels, he’s losing 50 percent of his total credit limit.

Who’s credit score will likely fall?

Answer: Both

Losing some of your total credit will often cause a negative impact to your credit score.While Sarah will likely see a decrease, Carl will probably take a big hit since he’s losing 50 percent of his total credit limit.

See how that works?

What Can I Do Besides Canceling A Credit Card

Rather than canceling your credit card, keep your credit card at a zero balance.This is far better than canceling the card.Of course, the best scenario for your credit scores is to use this credit card and pay it off every month.

Carl and Sarah are a great example because if you lose a big credit limit due to canceling a credit card, your credit scores are going to potentially  take a big hit.

There’s Going To Be Times When You Need To Cancel

Look, if you’re getting charged $500 a year for a credit card that’s not worth it, canceling may be your best option.As we said earlier, every scenario is different, so you have to use the best judgement for you.

Replace The Credit Card

Replace The Credit Card

If you feel you have to cancel it no matter what, try to replace your credit card with a better option.If you have better credit now, there’s a high chance you can find a better APR, less fees or better rewards.

If you haven’t checked yet, you can always sign up for a free account at Credit Karma.From there, you’ll be able to see what credit cards you have the best odds of being approved for, not to mention you can also monitor your credit scores there for free too.

In the end, canceling a credit card can impact your credit score, most times this is a negative impact toward your credit scores.While you can likely recover in months, some people need the highest credit scores they can get at the moment, like those of you trying to get a home right now.

If you’re applying for new credit, a new loan or others, it’s best to get that out of the way first before you do anything.

The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone. Additionally, the opinions of the commenters are not necessarily the opinions of this site

Leave a comment: