Get tips about closing a credit card and whether it can hurt you.
The last two shows have been about credit cards--the right strategy for paying them off and how to use a balance transfer card to your advantage. But what happens after you achieve the goal of paying off a card? In this show I’ll discuss whether you should close a credit card account or not.
Should You Cancel Your Credit Cards?
After you pay off a regular credit card or a balance transfer card, the next logical question is what to do with it. Maybe you have another credit card, or two, so canceling one seems like a good way to simplify your financial life. Or perhaps you really struggled to pay off a card that you used too freely in the past. Now you’re determined to close it so you don’t get lured into the trap of overspending again. Those are both very good reasonss to cancel a credit card.
Can Canceling a Credit Card Hurt Your Credit?
But before you do it, you may be surprised to hear me say that there are actually some good reasons not to do it! Canceling a credit card can hurt your credit score. To understand how that’s possible, I need to explain a bit about how your credit score is calculated.
There are different credit scoring models that exist, but you’ve probably heard of the one used by most lenders--the FICO score. FICO stands for the Fair Isaac Corporation and you can find more information about it at myfico.com.