For years, consumers have been taught that the best way to establish credit is to apply for a credit card. Consistently making payments and paying off balances has been touted as a surefire way to build and maintain a strong credit score. But what about cancelling credit cards? What is the effect of cancelling a credit card on your credit score? Here’s what you need to know.

When Not To Cancel A Credit Card

Cancelling a credit card may not make sense in every scenario. Cards that you have had for many years and those which are in good standing may better serve your credit by keeping them open. Additionally, cards that do not carry an annual fee and which provide points or other membership benefits may also be advantageous to hold onto. Lastly, it may not be wise to cancel a card when you have no other credit cards or credit profile, as lenders like to see that you have some history or ongoing credit worthiness.

When To Cancel A Credit Card

Credit cards with high interest rates or expensive annual fees may not be wise to maintain. If you have a history of carrying a balance on those cards, then you may be better suited in paying off those cards and cancelling them altogether. Similarly, if you have a history of running up large credit card debt, then carrying a credit card may not be a wise choice. In the alternative, you may want to ask your credit card company to lower your credit limit if you do not feel that you can responsibly control your spending.

How Will It Affect My Credit?

The general consensus appears to be that cancelling a credit card that has a zero balance will have little to no effect on your credit score. Still, if you have no other lines of credit, it may be wise to at least carry a low interest card to help maintain a credit profile and to cover your needs in emergencies. Further, when cancelling a credit card, your overall credit availability decreases. This has the potential of temporarily lowering your credit score. However, if you do not take on any additional debt, and you make timely payments on all of your obligations, then your score should rebound in due time. In summary, cancelling a high interest credit card, or cancelling a card that you have had difficulty paying off, may temporarily reduce your credit score. However, it may be worth it in the long run.

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