April 16, 2010
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News: Confused About Canceling A Credit Card
Americans remain confused and continue to ask if canceling a credit card will damage their credit score. Others wonder if paying higher interest rates and fees are worth taking the risk. Nevertheless, the question remains; should one cancel a credit card. Of course, everyone has to make that decision on his own and determine what's best for him. Generally speaking, canceling a credit card could have a negative effect on your credit score. Two of the variables that credit reporting bureaus use to calculate your score are your available credit and debt to income ratio. That means that if you cancel your card that has a significant amount of available credit, you'll be increasing your debt to income ratio. Increasing the debt to income ratio will decrease your credit score.
Each credit reporting bureau maintains a slightly different method in calculating scores so any change in your debt to income ratio will affect each of the scores differently. Therefore, it would be difficult to determine just how much closing a credit card account will affect you. Another thing to consider when thinking about closing a credit card account would be what type of penalties and fees is charged for doing so. New legislation has made many of these fees illegal; however, timing could be important when interest rate increases have motivated the individual to close the account. Again, it is wise to check with your lender on any possible fees and deadlines.
Lastly, be aware of your lender's requirements for closing a credit card account. Some lenders require written notice though the mail. Others accept notice over the telephone. The best way to know for sure is to check with you lender to get the specifics. Be sure to keep accurate records of the date and person you spoke with if you should close the account over the phone. Again, each individual must make the decision based on his own personal needs. Closing the account could decrease your credit score. On the other hand, depending on the amount of your card balance, closing your card account could save you lots of money in interest and fees.