My New Credit Card

With credit card debt being at an all-time high, it is not surprising that many cardholders are choosing to cancel some of their cards to avoid debt and simplify the management of multiple credit accounts. Repaying a large amount of debt and repairing the credit score after being a victim of credit card debt can be a process that takes years to complete. Thus, many cardholders choose to simply close their credit accounts, rather than risk accumulating even more debt in the near future. Although this may seem to be the wisest decision, there are several factors that need to be considered before a credit card account is canceled.

Current Interest Rates

While low interest rates may seem useless to an individual who is in debt and cannot afford to make credit card repayments, they are an increasing rarity in today’s credit card market. It seems as if credit card interest rates are continuing to rise year after year, despite various policy reforms designed to protect consumers from unfair fees and rates. Rather than closing the credit card account with the lowest fixed interest rate, it may be best to consolidate other credit card accounts to this account so that the overall debt can be repaid at a lower rate.

Available Credit Line

Credit card issuers are becoming more hesitant to provide hefty credit limits, so even though it may represent an additional temptation that could lead to debt, it would not be advisable to close a credit account with a large available credit line. It is also important to consider the overall available credit line across all credit accounts, as this has a significant impact on the utilization rate (which is the ratio of debt to available credit). If too many credit card accounts are closed simultaneously the utilization rate can rise to levels that will cause even more damage to the credit score.

Card Repayment History

The repayments of each credit card account are reported to the three credit reporting agencies, Equifax, Experian and Transunion. Credit card accounts which have a history of timely repayments are beneficial to the credit score on ongoing basis because they indicate financial responsibility. When such credit card accounts are closed abruptly they are removed from the credit report, along with their beneficial attributes. It is therefore never wise to close a credit card account which has a positive repayment history, regardless of the current debt situation.

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