3 Signs That Show You Need To Ditch Your Credit Card

Canceling a credit card is something you should think about carefully before moving forward. If you do close out a credit card account, it will typically lower your credit score because your credit utilization ratio is part of how your score is calculated.

Credit utilization is the amount of available credit you have vs. how much you’re using. If you close a credit card account, you’ll have less available credit, so your score will drop. You can build it back up over time, but for the moment, you’ll have to deal with that lower score.

Still, there are times when closing out a credit card is your most prudent move. We’ll talk about three signs you should close out a card right now.

1. Overspending

Before we get to the signs that you need to ditch a credit card, we should stress that credit cards can be useful financial tools. In that respect, a card is much like a monthly loan repayment calculator or a balance sheet. If you use them correctly, they can help you spend, track, or manage your money. There is always a chance that you might use one improperly, though.

This leads us to overspend. If you have a credit card and are consistently using it to spend beyond your means, it might be worth the credit hit to cancel it and avoid doing this anymore.

Some experts feel that if you overspend, you will find a way to do that even if you don’t have a credit card. However, credit cards remain one of the easiest ways to spend money. Taking that temptation away might be the best move, at least until you can learn to restrain yourself.

2. No Rewards

Some people will get a particular credit card because they like the rewards that come with it. Those might include cashback on gas, restaurants, hotel stays, etc. There are also starter credit cards, though, that allow you to build your credit since they will report on-time payments to credit bureaus.

The problem with this type of card is that it doesn’t come with cashback, miles, or points. Maybe you opened one of these accounts to build up your credit score gradually, but now, you want a card that rewards you. If so, closing out a starter credit card might need to happen at some point. However, you may be better off keeping the card open to ensure you don’t hurt your credit history and applying for an additional card with better benefits.

3. Store Cards

You might have opened up a store credit card, such as one for Target or DSW. If you were getting something at one of these stores, a cashier may have told you that you could save some money on a purchase by applying for and getting a store card on the spot.

The problem with store cards is that they don’t usually have very favorable terms. They typically don’t offer bonuses or perks of any kind, and they come with high-interest rates.

They also have low credit limits, so carrying a balance on them will hurt your credit. You’ll have a high credit utilization ratio, even if you’re not spending all that much. Closing out such a card will probably benefit you in the long run.

Consider These Reasons for Closing an Account

Closing out store credit cards is often a good idea, and you should also think about closing credit card accounts if they don’t offer you enticing rewards. You might also close a credit card account if you consistently overspend with that card.

Your credit score will lower in any of these instances, but it might still be worth it to close out an account. Remember that you can always rebuild your credit if you’re mindful of your financial responsibilities.

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