In today's economy, keeping a good credit score can be a challenge, especially when you have to cancel credit cards. Canceling your cards will help save money by decreasing your ability to spend but there is more to canceling cards than meets the eye.
Your Financial Record
Even after you cancel, your cards still exist and still effect your credit score. They can no longer be used for spending purposes but they will continue to appear on your personal credit report for seven years. This includes cards that were only open for a single day. Other information related to your cards will also appear on your credit report, including any late payments, charge-offs or overspending.
Keep Some Personal Things
Those who decide to make the commitment of "death till we part" often make the mistake of canceling all of their personal accounts and merging their assets with their spouses. While this makes handling finances a lot easier, it does not help your personal credit score. Being an authorized signer on your spouse's credit card will not establish credit on your behalf. You must have a card in your own name and maintain some small activity on the card to continue to earn credit.
Don't Cancel The Old Ones
New and exciting offers of lower interest rates and no annual fees may entice you to switch; however, it's not always worth jumping ship. When lenders look at your credit report, they look at how long you have maintained your cards. After all, the longer you have the card, the more credit history will be available to the lenders for their judgment.
Don't Just Tear Them Up!
While it may feel therapeutic to cut up those plastic nightmares, it does not mean that they have been cancelled. Your cards will stay active until the date of their expiration, unless you contact the company yourself. In order to cancel, you should always look on the back of the card to find the customer support number. When you speak to the representative, make sure that they understand that they are canceling the card at your request. It looks better on a credit report when the user is the one who terminates the agreement.
You Can Have More Than One
Having more than one might may make you feel antsy but it's not always a bad thing. Multiple cards allow you to keep a lower balance on each card, which can raise your credit score. Lenders look at the balance on each card and compare it to the amount available on the card. This means that the less you have on the card, the better. If your debt starts increasing, it's best to stay under 30% of your limit.
By taking the time to educate yourself, you can make smart decisions that will positively affect your financial life.