Laura gives 5 important tips you should know before canceling a credit card.
Many people mistakenly believe that the best way to raise your credit score is to get rid of your credit cards. But that can backfire because you need available credit in order to boost your score.
Here are 5 tips you should know about closing a credit card:
Tip #1: Never Close Cards With Balances
Canceling a credit card account takes your available credit to $0—but you still owe the same amount of money. That shoots your credit utilization ratio through the roof, which lowers your score.
Tip #2: Don’t Close Your Only Card
Having a mix of both credit cards and installment loans (like a car or student loan) boosts your credit score.
Tip #3: Keep Your Oldest Card
Don’t be too quick to ditch a credit card that you’ve had for years because the longer your credit history, the better.
Tip #4: Keep Your Cheapest Card
Always hang on to your credit card with the lowest interest rate.
You should never carry a credit card balance from month to month—but if you do, it’s wise to pay the lowest interest rate possible.
Tip #5: Close Impulse Cards
Did a salesperson lure you into signing up for a retail store card? Don’t worry. If you haven’t had the card very long, canceling it won’t do much damage to your credit. It’s okay to close impulse cards that you regret applying for.