When you pay off a credit card that you have been carrying a balance on for a while, your first instinct may be closing credit cards so you never put yourself in that type of financial bind again.
While closing a credit card can be an effective way of limiting your spending to the amount of money you actually have in the bank, it could ultimately cause you more financial harm than good. Because credit is so important in today’s society and credit scores are used to determine your eligibility for home loans, jobs, and insurance, it is important to manage your credit cards in a way that will not harm your credit score. Here are some things that you should think about before closing a credit card.
Keep Universal Credit Cards With High Limits
Credit cards that can be used anywhere Visa, MasterCard, American Express, or Discover are accepted are the best credit cards to keep handy. These credit cards issued by credit card companies and banks generally have higher credit limits and lower interest rates than credit cards issued by other entities. Keeping the credit cards with the highest limits and keeping your credit usage low will help your credit score by keeping your credit utilization rate below 30 percent, which is necessary for a great credit score.
Close Store-Specific Credit Cards With Low Limits And High Interest Rates
Many people have several store-specific credit cards in their wallet because they were offered a discount on the merchandise they were purchasing by the person running the checkout line in exchange for filling out a credit application. These credit cards generally can only be used at the store that issued them and often have high interest rates and/or annual fees for keeping the account open. Unless these credit cards are your only credit cards, your credit card will not take a significant hit when you close them.
If store-specific credit cards are your only credit cards, you should explore obtaining a credit card that can be used universally. If you have a good record of on-time payments with the credit cards you currently have, you should have no problem getting a credit card from your bank or a credit card company. Examine several offers to see which one would be the best for you.
Be sure to review the interest rates and fee schedule printed in the terms and conditions of the credit card before agreeing to sign up for the card. The best credit card offers will have a generous credit limit, a low interest rate, and low or no fees for using the card. Depending on the terms of the new credit card, you may be able to transfer the balances of your old credit cards to the new card to take advantage of a lower interest rate and save a considerable amount of money on interest payments.