
Friend or Foe: Is It Smart to Cancel a Credit Card?
Like most Americans, you probably have a few different credit cards in your wallet, and you probably have a favorite one—one that helps you earn points for vacations, gas, groceries and more. You probably also have one that you no longer use. Maybe it doesn't earn you the right rewards, or its interest rate is through the roof. Regardless, you've likely considered canceling it.
There's a lot of information out there, and we want to help you figure out what's best for you and your financial goals. So, before you make a final decision about closing an account, here are a few things to consider:
Why do you want to cancel your credit card?
First, consider how you're currently using your credit card and why you want to cancel it. Is it because of the benefits—or lack thereof? Do you want to spend less and eliminate temptation?
Figuring out why you no longer want a card will help you determine if closing your account is truly the best course of action. Here are some pros and cons of both options:
Pros of canceling a card:
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To avoid exorbitant annual fees or a high interest rate
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To get spending under control
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To simplify expenses and spend more deliberately
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To replace it with a card that better suits your financial goals
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To reduce your risk of identity theft
Cons of canceling a card:
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It can shorten overall credit history
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It can increase credit utilization, the overall amount owed compared to the total amount available
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It can decrease the diversity of credit options
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It eliminates the added lifeline in case of an emergency
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It removes access to benefits, points and rewards
Closing an unused credit card will likely affect your credit score.