Yes, it is bad to cancel a credit card since it can negatively affect your credit score by impacting the amount of credit you have available, your credit utilization and the age of your credit history. The exact credit score impact varies by individual. You can estimate how canceling a credit card will affect your credit score by using WalletHub’s free credit score simulator.
Reasons Why It Is Bad to Cancel a Credit Card
Overall credit goes down. When you cancel a credit card account, you no longer have access to the credit limit on that card, in turn reducing the total credit you have available between all your credit card accounts.
Credit utilization goes up. When your total credit limit goes down, your credit utilization goes up, assuming your spending stays the same. If you have a high credit utilization ratio, it signals to creditors and other lenders that you may have trouble affording more spending power.
Age of credit history drops. The age of your credit history matters for your credit score. Closing older credit card accounts will impact your score more than closing newer accounts.
Credit score will fall. High credit utilization and a short credit history are two things that can hurt your credit score after canceling a credit card. Your credit score won’t drop as much if you don’t close accounts that are the oldest or that have the highest credit limits.
Less positive credit information gets reported. A credit card account that’s in good standing will relay positive information to the major credit bureaus each month, even if you don’t use the card to make purchases. Closing the account will stop the flow of positive info.
Even though canceling a credit card is usually not recommended, there are still some instances where it may be necessary to cancel a credit card, like if the card has a high annual fee or if you have the tendency to overspend. You can check out the most common reasons for canceling a credit card to learn more.
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