Do You Really Want to Cancel Your Credit Card?

People think of canceling their credit cards for many reasons. However, think twice before you take such a decision. It may do more harm than good.

There are several reasons for which people want to cancel their credit cards. Some people think that the bad credit card history will be removed from their credit report once they cancel the card. Some people do it for avoiding the spending temptations. Others think that before applying for a mortgage, or auto loan, they should cancel their unused credit cards so that their eligibility for such loan will be increased!

If you are thinking to cancel your card with the intention of 'clearing' your bad credit history, you are wrong there. If you have a bad credit history on any of your card, it will not go from your report by canceling such card. A closed card account will stay for years on your report. Even though you wish to delete it from your report, your credit bureau will not do that soon. So it will make no sense to cancel such card on your own.

Another reason for cancellation is increasing eligibility for a loan. This is also an incorrect reason. If you are applying for a mortgage, canceling your cards will not do any good. On the other hand, it will lower your credit score! It makes your lenders unhappy.

Your ultimate goal is to build a long and good credit history. So if you continue with your first credit card which you might have obtained in your college days, and if that account has good standing, by keeping it you will extend your credit history over a long time. The length of your credit history will have impact of 15 per cent on your credit score.

If you are holding several credit cards with a large amount of unused credit, your credit utilization rate becomes stronger. This will help you in any future mortgage or loan application.

The credit bureaus never declare their precise formulas for calculating your credit score. However, it is a well known fact that a higher volume of unutilized your credit will significantly increase your score.

If you're really afraid of spending temptations, you can certainly cancel some of your credit cards by taking the following precautions -

1.
Never cancel a card with a balance. Pay off the entire balance and then think of canceling that card.

2.
Never cancel older cards. You should keep cards with longer history.

3.
Check with your credit card company whether they report credit limits or not. If the company is not reporting your credit limit, it will be assumed by the bureau that you are utilizing 100 per cent of your available credit. That will not help you much. You may not keep such card.

Finally, if you feel you are tempted to spend more by holding unused cards, you must cancel some of them. It will hurt your credit score a little, but it is better than creating further debts for you!

Chintamani Abhyankar, is an expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and tips on personal finance.