Finance Globe

U.S. financial and economic topics from several finance writers.
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When To Call It Quits With A Credit Card

A hit 70’s song said breaking up is hard to do. When you have a credit card that no longer benefits you, leaving may not be as tough as you think. Sometimes better credit cards come along and the cards that used to treat you well may not do the same thing any longer. Here are some examples of times you can break up with your credit card issuer.

Your credit limit’s been cut. Imagine this situation: last year, you had a $1,000 credit limit. This year, the credit card issuer cut your credit limit to $100 leaving you with very little room to make purchases. Considering the ideal credit utilization is 30% of the credit limit, you’d only be able to charge $30 on that card. With such a low credit limit, that credit card is not worth keeping.

You want to eliminate the temptation to spend. You might have to get rid of your credit cards if you want to pay off debt, go on a debt diet, or get your finances back in shape. People have recommended putting your credit card on ice to keep you from using the card, but if you really want to charge something, you’ll find a way to melt the ice quickly. Closing the credit card is usually the best way to keep from using it.

Your interest rate is higher than all your other credit cards. There’s very little incentive to pay a high interest rate on one credit card if your other credit cards have much lower interest rates. Before you close the card, you can try negotiating a lower interest rate. But if the creditor isn’t willing to lower your rate, consider moving the balance to another credit card.

The rewards program has become unattractive. Pay close attention to changes in your credit card’s reward program. Over time, the rewards may be degraded to the point that the card is no longer worth having, especially if other credit card issuers are offering better rewards or the card is charging an annual fee.

You haven’t used the card in several months or even years. You may not get the chance to close your unused account because your credit card issuer may beat you to it. But, if your credit card is still open and you haven’t used the account for a long time, perhaps you don’t need it. Consider keeping it open to help your credit utilization, but to do that you should use it periodically so your creditor doesn’t close the account.

You only used the card to jumpstart your credit. Perhaps you signed up for the credit card when you were trying to repair bad credit or build a brand new credit score. The credit cards you get in either of those situations typically aren’t ideal for long term. If your credit has improved to the point that you can qualify for a better credit card – with a higher interest rate, higher credit limit, and lower annual fee – you can safely let go of your starter credit card.

The Impact of Closing a Credit Card

Beware that closing a credit card could hurt your credit score if that credit card still has a balance or if your other credit cards have balances higher than 30% of the credit limit. The damage to your credit score is typically only temporary, as you reduce your credit card balances, your credit utilization goes down and your credit score will improve.
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Monday, 26 August 2019

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