Canceling credit cards–smart move or credit mistake?

1040. Laura explains the hidden risks of canceling credit card accounts. You’ll learn how credit utilization works, when closing an account is and isn’t worth it, and how to protect your credit if you do decide to close a credit card.  

Key takeaways:

• Closing a credit card shrinks your available credit, which causes your credit utilization ratio to spike, resulting in an immediate reduction in your credit scores.
• Canceling a card you’ve owned for a while lowers your average age of credit, which can lower your scores. 
• Before canceling a high-fee card, consider applying for a replacement so you maintain your total available credit and won’t see your credit scores go down.
• If you don’t want a card or its annual fee outweighs the perks, closing it can be worth a temporary credit score dip–unless you plan to make a significant purchase, like a car or home, within the next six months.
• If you’re not disciplined with credit cards, closing them can be worthwhile to prevent overspending and future financial problems.

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