13 Reasons Why You Shouldn’t Cancel Your Credit Card

You’ve finally paid off your credit card debt – congratulations! It’s a huge accomplishment and a major step towards financial freedom. But before you cut up that card and close the account for good, you might want to think twice.

Canceling a credit card can actually have some surprising consequences for your credit score and overall financial health. In this post, we’ll explore 13 reasons why you shouldn’t be too hasty in canceling your credit card.

It Can Lower Your Credit Score

One of the most compelling reasons to keep your credit card account open is that closing it can actually lower your credit score. Your credit score is determined by various factors, including your credit utilization ratio and the length of your credit history. Closing a credit card account can negatively impact both of these factors, potentially causing your score to drop.

It Reduces Your Available Credit

When you close a credit card account, you’re essentially reducing the amount of credit available to you. This can be problematic because it increases your credit utilization ratio – the amount of credit you’re using compared to the amount you have available. A higher credit utilization ratio can be a red flag to lenders and can lower your credit score.

It Shortens Your Credit History

The length of your credit history is another important factor in determining your credit score. When you close a credit card account, especially one you’ve had for a long time, it can shorten your average credit history and potentially lower your score. It’s generally best to keep old accounts open, even if you’re not using them regularly.

You Lose Rewards and Perks

Many credit cards come with valuable rewards and perks, such as cashback, travel points, or discounts on certain purchases. When you close your credit card account, you’ll lose access to these benefits. If you’ve accumulated a significant amount of rewards, it might be worth keeping the account open just to take advantage of them.

It Can Be a Hassle to Reopen

If you change your mind and decide you want to use the credit card again in the future, it can be a hassle to reopen a closed account. You may have to apply for a new card altogether, which can result in a hard inquiry on your credit report and potentially lower your score even further.

You Might Need It for Emergencies

Even if you don’t plan on using your credit card regularly, it can be a good idea to keep it open for emergencies. Life is unpredictable, and having a credit card available can provide a safety net in case of unexpected expenses or financial hardships.

It Can Help You Maintain a Mix of Credit

Having a mix of different types of credit – such as credit cards, mortgages, and car loans – can actually be good for your credit score. Closing a credit card account can throw off this balance and potentially lower your score.

You Might Lose Your oldest Account

As mentioned earlier, the length of your credit history is an important factor in determining your credit score. If the credit card you’re considering canceling is your oldest account, closing it can have an even more significant impact on your score.

It Can Affect Your Ability to Rent or Get a Loan

Your credit score isn’t just important for getting new credit cards—it can also affect your ability to rent an apartment, get a mortgage, or even get certain jobs. Closing a credit card lowers your score, potentially making it more difficult to achieve these important life milestones.

You Might Lose a Backup Payment Method

Having a credit card can be a useful backup payment method, especially if your primary card is lost, stolen, or compromised. Closing your account means losing this backup option, which could be inconvenient or even problematic in certain situations.

It Can Affect Your Ability to Make Large Purchases

If you’re planning on making a large purchase in the near future – such as a car or a home – having a high credit score can help you secure a better interest rate and save money in the long run. Closing a credit card and potentially lowering your score could make it more difficult or more expensive to make these important purchases.

You Might Lose Fraud Protection

Many credit cards come with built-in fraud protection, which can be invaluable if your card is lost, stolen, or used without your permission. When you close your account, you’ll lose access to this protection, which could leave you vulnerable to financial losses if something goes wrong.

It’s Not Always Necessary

Finally, it’s important to remember that closing a credit card account isn’t always necessary, even if you’re not using the card regularly. As long as you’re not paying an annual fee and the card isn’t tempting you to overspend, there’s usually no harm in keeping the account open and allowing it to help your credit score over time.

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