Laura Whitcombe
If you’ve found an old credit card lying at the back of a drawer, you might want to think about it before you cancel it.
While it might sound logical to cut it up and ask the credit company to close your account, you could be doing yourself a disservice.
Of course, having access to a credit card could be useful, especially if you want to spread payments and ease your cash flow. But did you know that just by having a card, even if you don’t use it often, can actually help your credit score?
A good record of paying what you owe on time and not maxing out your card limit proves to lenders that you can manage debt responsibly and so they could be more likely to lend to you in future — and you may be eligible for more competitive rates.
Why you might close a credit card
That said, there are reasons why you might close a credit card. For example, if you haven’t used the card in ages, the chances are that any incentives you were eligible for such as a lower rate of interest on new purchases have come to an end and you’re only getting the basic features of the card.
This means you’re probably also missing out on deals and perks reserved exclusively for new customers and that means you could be better off closing the credit card and switching to another provider.
Another reason is if you have lots of credit cards with outstanding balances, you may be harming your chances of securing future credit at competitive rates of interest. This is because a new provider may look at your credit record and think you’ve overstretched yourself.
And then there’s the risk of fraud. You’re far less likely to be regularly checking your account if you no longer make purchases on the credit card, or have a zero balance so fraudulent activity could go unnoticed.
How to close a credit card
If you decide you want to close a credit card, it’s not enough to take a pair of scissors to the card. You must inform the card provider and the easiest way to do that is usually by calling customer services. The phone number is often printed on the back of your credit card.
At this point, you might be offered a better deal to stay — such incentives could include a reduced rate of interest, and free or discounted balance transfer fees that could cut the cost of borrowing you may have on other credit cards.
But if you do decide to close your account, you will be given a date this will become effective. And it’s always wise to check with the provider by calling back around a month after that date just to make sure the account has been shut down.
Does closing a credit card affect credit score?
Assuming you had no outstanding balance and had a good record of paying on time there shouldn’t be any harm to your credit score in closing an old account.
However, there is one scenario that could damage your score. It’s all down to your ‘credit utilisation’. Say you had four credit cards and a credit limit on each of £2,500. That’s a total credit facility of £10,000. If you had £5,000 debt spread across a selection of those cards and then you close one, your credit utilisation shoots up from 50% (£5,000 of a £10,000 facility) to just over 66% (£5,000 of a £7,500 facility) and some credit companies may deem that too high and reduce your credit score as a result.
That said, other credit providers don’t like borrowers having too many forms of credit in use and so if you close a card — or several cards — your score might actually improve.
As you can see there’s no single yes or no answer to this question, but hopefully, you’re glad we worked through these scenarios rather than just telling you ‘it’s complicated’.
» MORE: How To Check Your Credit Score
Can you cancel a debit card?
If you’re worried about a debit card that’s been lost or stolen, you can cancel it by informing your bank’s customer services department and reporting it.
They’ll put a stop on the account immediately and ask you to confirm your last known transaction.
You’ll then be sent a replacement card within a few business days and normally you’ll be given a temporary access code to be able to withdraw cash at an ATM until the new card arrives.
Remember, a debit card is linked to your bank account — it’s just a payment method and alternative to you having to physically withdraw cash. If you no longer want to be able to use the debit card or have the bank account, you’d need to close the entire account.Image source: Getty Images
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