Being in debt can be frustrating, especially it is associated with credit cards. Anyone struggling with such debts will want to close their credit cards the sooner in the assumption that it could only get worse. However, closing your credit cards because of bad debts may not be a solution. In any case, it could end up hurting your credit score.
So what must you know about your credit cards before deciding to close it?
You will have a better credit utilization
Having more credit cards means you stand a better chance for a credit utilization ratio. The ratio is made of 30 percent of the credit score. Hence just a small change such as the closure of a credit card could result in a disastrous impact and reduces the available credit for a person.
Old credit cards boost the credit score
The longer the history of your credit accounts, the higher the chances of boosting your credit score. According to CreditCards.com, 15 percent of a person’s FICO score is derived from their credit history accounts. It is worth noting that a majority of lenders are more likely to trust people with longer credit histories. This could also be referenced to the age of your card
Credit cards broaden the horizons of your credit
This is as far as the credit mix is concerned and according to myFICO.com. Nonetheless, a credit mix can only be beneficial if you can handle multiple types of credit. Many lenders are interested in your flexibility and reliability while running revolving accounts.
However, despite all this, there are instances whereby closing the credit is the only solution left. If this is very necessary, this is what you should consider: –
Interest rates: – If they are high pay off the debt and close the card
Terms and bonuses: – This applies if you have multiple cards. Close those with high terms and fees and retain those with good terms.
Unused cards with yearly fees: – Closing a card with an annual fee, which you are not utilizing, is a wise choice. However, if you are receiving annual rewards from them, reconsider the closure.