If you have multiple credit cards and are considering canceling one or more to save on fees or to reduce temptation to buy more than you can afford, don't act in haste. Canceling a card, although it prevents overspending, actually has an immediate negative effect on your credit rating. Because you are reducing your pool of available credit, the amount you are currently borrowing as a percentage of your total available credit jumps, which can weigh down your credit rating for up to ten years. It could also impact the overall length of your credit history. As a result, you could end up paying more for future loans.
As Consumer Reports explains, there are other things you can do instead of canceling the card, such as asking for a waiver of fees, or downgrading the card to a lower fee or one that does not provide rewards. You can also physically shred the card, which keeps your account in place but prevents you from accessing it. You can always call the card issuer for a replacement if you have a need for the credit line later.
To help your readers/listeners/viewers understand strategies for managing their credit and improving their credit score, talk with loan officers at local banks or credit counselors in your area. They can explain how credit ratings are used, and how careful planning can help build a solid score over time.
Sponsored by the National Endowment for Financial Education
For more personal finance story ideas, click on the banner below:
Mark Garrison of Marketplace entered the 2016 NEFE/RTDNA awards contest with a story about travel insurance and the risks of booking a big trip without it.