Most people think that they should never really shut down a credit card account unless and until there is some absolutely pressing reason behind it. Often people think that closing a credit account can take a toll on your credit score. While sometimes it may be true that closing an old salary account may cut your credit history short which in-turn can lower your credit score, but sometimes closing an account can be a prudent choice. Yes, cutting off a credit card does narrow your available credit limit, but that is highly subjective on your scenario. This will also mean that the available balance you have will consume a greater percentage of your available credit. Thus, this may affect your credit utilization ratio which is an important factor in your total credit score and it is best maintained as low as possible.
However, these points do not suggest that one should never close a credit card account. Instead it is recommended that one should be prudent about which accounts to close and which ones to keep.
Here are a few reasons when closing a credit card account can be a good idea:
- When there are chances of identity theft. There is a possibility that the more credit cards you possess the higher are the chances of having any one of them compromised. It is obvious that there is only so much you can keep track of. So, it may be a good idea to close a credit card account if you are having a hard time keeping all the information in check or if you fear there are chances of identity theft to minimize the risks associated with maintaining too many cards. Especially the cards that are least used have the highest chances of being compromised. Most wrong-doers target such cards and gather information about it, usually from online retail stores or websites where you used the card a long time back to make a payment. As they believe that they can use this information and put some considerable amount of charges on it for a longer time without getting caught.
However, it is advised that you only use safe and secure websites to make payments using credit cards and that too only over trusted Wi-fi services.
- When your credit card charges high fees or high interest rates. If you are being charged too high fee for maintaining a credit card account but not really getting much benefits out of it, then it might be smarter to close that account. It is usually smart to maintain cards that come with additional benefits like airline points or restaurant bill deductions, as they might be worth their annual fee if used at the right place at the right time. Also before shutting off a credit account because it is too much for you to maintain, try negotiating with your card provider instead. If it still does not work then it is a good option to close the card.
- Wait it out if you have a major purchase coming up. It is prudent to wait before closing the credit account as having that will add to your credit allowance and that is always a good thing when a major purchase is coming up that requires frequent financing.
- If you are a big spender when you have the plastic to afford it. If you are an impulsive shopper who almost always succumbs to purchasing the most unnecessary things then it is strongly advised that you reduce your plastic usage capabilities. As desperate times call for desperate measures it is always better to take a hit of lowered credit score than go off the rails with your shopping spree.