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What Canceling a Credit Card Does to Your Credit Score

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Very Upset Woman Holding Her Many Credit Cards.

To answer the question “how does canceling my credit card affect my credit score?” you need to understand how your credit score is calculated. Your credit score is based on the following five factors: amounts owed (utilization), payment history, length of credit history, credit mix, and new credit.

When you cancel a credit card, you may affect several of the factors that make up your credit score. While there is no specific answer as to how many points your credit score will actually be affected when you cancel a card, it’s well known that it will, in fact, be affected negatively.

[Decoding How FICO Determines Your Credit Score.]

Credit Utilization

Credit utilization is the factor that is most likely to be affected if you cancel a credit card. Your credit utilization is part of the “amounts owed” category that accounts for 30% of your credit score. Credit utilization compares your credit card balances to your credit limits. When you close a credit card, you are closing an entire line of credit, which could make your utilization ratio worse because you’re decreasing the available credit limit you have. Unless you decrease your spending after you close a card, or open a new card, you are likely going to negatively affect your utilization ratio.

How your specific credit will actually be affected depends on a number of things, including whether you have a balance on the account you’re closing and whether you have balances on other credit cards you have open. If you have no debt or little debt on the card you’re closing, but more debt on the cards that you’re keeping open, then you will probably increase your credit utilization (like in the example above). This will have a negative impact on your score. However, if you spend 20 percent or less of your remaining credit limit and you always pay off your bills on time and in full, your score won’t be harmed as much from a utilization perspective.

For example, if you have three credit cards with $2,000 limits on each, and a $200 balance on the first card, a $500 balance on the second card, and a $700 balance on the third card, your total credit limit is $6,000 and the total credit you’re using is $1,400. If you pay off and close the first card, your total credit limit becomes $4,000 and the total credit you’re using becomes $1,200. When you had all three cards your utilization ratio was 23% ($1,400/$6,000). After you closed the first card your utilization ratio became 30% ($1,200/$4,000). In this example, by closing one line of credit, you increased your utilization ratio, which has a negative impact on your credit.

The bottom line is that you want to still keep your credit utilization at 20 percent or less when you close your card. Otherwise, it will have a negative impact on your credit score.

[Best Free Credit Score Sites for Each Bureau.]

Payment History

Canceling a credit card won’t immediately affect the payment history category that factors into your credit score, which accounts for 35% of your credit score. This is because the payment history of any account you close will remain on your credit report and be factored into your credit score for seven years for negative history and ten years for positive payment history. So, just because you close an account does not mean it stops impacting your credit – in fact, it will continue to be a part of your credit for a long time.

[5 Credit Card Myths Hurting Your Wallet and Credit Score.]

Length of Credit History

A third category that will be affected by canceling your credit card is the length of credit history, which accounts for 15% of your credit score. After you cancel your card, whether it’s seven or ten years later, eventually, that card history will drop off your credit reports and no longer be included in calculating your score. This could negatively affect your credit if it was your oldest account and the other accounts were much newer. Because of this, you should consider how long you’ve had credit cards before canceling them. It’s generally better to close a newer account than an older account because you can maintain a longer credit history this way.

Credit Mix & New Credit

If you cancel a credit card and it was your only credit card, then you are removing an entire category of a source of credit, which will affect your “credit mix” (10% of your score). This indicates your ability to handle a variety of credit, commonly: student loans, mortgages, personal loans, auto loans and credit cards. A credit card is the only way to be building that credit score without paying a penny in interest. If you pay your statement off on time and in full each month, then you’re establishing a score without giving the bank money. Cancelling your own credit card removes one of the ways you can prove to a lender you’re a reliable borrower, which can lower your score.

If you are canceling a credit card, this won’t affect the “new credit” category, which makes up 10% of your score. This is because the very nature of canceling a card means that you are getting rid of credit, not opening new credit.

[6 Simple Steps to Improve Your Credit Score.]

3 Tips to Consider Before Canceling a Credit Card

Knowing that your credit score may take a hit if you cancel one of your credit cards, you should consider the following factors before making the decision to close a card.

  1. Consider canceling cards that cost you money. If you pay high fees on any of your cards, these are the cards you should consider canceling first. It doesn’t make sense to keep a card open that is costing you a lot of money.
  2. Consider upcoming financing you’ll be doing. If you are applying for financing, such as a mortgage, you want as high of a credit score as possible. Therefore, you should avoid doing anything that will decrease your credit score before you get financing.
  3. Consider negotiating with the credit card company. If you want to cancel a credit card because of a high fee or a high interest rate, call the company and negotiate better terms. Often, credit card companies will work with you because they want to keep you as a customer. This may be a better option for you if you can get more favorable terms.

A Final Word

Canceling a credit card may negatively affect your credit score because it will affect your credit utilization ratio, payment history, length of credit, and credit mix. That said, there are reasons to cancel a credit card, especially if you are overspending or paying high fees and interest. The exact number of points that your score could go down varies – there’s no way to know fore sure. This is why you should look at your entire financial situation and make the decision that is best for you before you cancel a credit card.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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The Best Options for Rebuilding Your Credit Score in 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any credit card issuer. This site may be compensated through a credit card issuer partnership.

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The Best Options for Rebuilding Your Credit Score

A strong credit score is a vital part of your overall financial health. But rebuilding a damaged (or non-existent) credit score can feel impossible. Don’t despair. There are plenty of avenues you can take in order to rehabilitate your credit score and it all begins with identifying your starting point.

How Bad is Your Bad Credit Score?

Before you start to panic about rehabilitating your bad credit score, let’s determine if it’s even bad. Where do you fall in the range of FICO® credit scores? Below you’ll find what your credit score is considered, with ranges from Experian.

  • Above 740: Excellent Credit
  • 670 – 739: Good Credit
  • 580 – 669: Fair Credit
  • Below 579: Bad Credit or No Credit Score/Thin File

Your credit score isn’t the only thing that will keep you from being approved for credit. These factors are common reasons for being declined.

  • Your debt-to-income ratio is above 50%
  • You have no credit score
  • You have been building up a lot of debt recently
  • You are unemployed

In order to focus on rehabilitating your credit score, you’ll need to start with getting a line of credit. This may sound impossible because you’re constantly getting declined. Fortunately, there are options tailored specifically for people looking to re-establish credit.

[Read more about bad credit scores here.]

Rehabilitating a Bad Credit Score (579 and under)

Get a Secured Card

You’ll use your own money as collateral by putting down a deposit, which is often about $150 – $250. Typically, the amount of your deposit will then be your credit limit. You should make one small purchase each month and then pay it off on time and in full. Once you prove you’re responsible, you may be able to get back your deposit and upgrade to a regular credit card.

Check out two of our favorite secured cards below, and more options for a secured credit card here.

The Discover it® Secured

Perhaps our favorite secured card, the Discover it® Secured, has numerous benefits for those looking to rebound from a bad credit score. There is a $200 minimum security deposit that will become your line of credit, which is typical of secured credit cards.  An additional perk is the rewards program (very rare for secured cards) that offers 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically. This card has another great feature: Discover will automatically review your account, starting at month eight, to see if your account is eligible to transition to an unsecured card. Discover will decide if you’re eligible based on a variety of credit factors, and if you are, you will receive notification and get your security deposit back.

The Capital One® Secured Mastercard®

The Capital One® Secured Mastercard® is another option for those who want to strengthen their credit score. This card offers a potentially lower minimum security deposit than other cards, starting as low as $49. Be aware the lower deposit is not guaranteed and you may be required to deposit $99 or $200. You can deposit more before your account opens and get a maximum credit limit of $1,000. There is a feature that will assist your transition from a secured to an unsecured card. Capital One automatically reviews your account for on time payments and will inform you if you’re eligible for an upgrade. However, there is no set time period when they will review your account — it depends on several credit activities. If you receive notification that you’re eligible, you will be refunded your security deposit and will receive an unsecured card.

Rebuilding from a Fair Credit Score (580 – 669)

Apply for a Store Credit Card

You might be used to checking out at a store and being asked if you’d like to open a credit card. While these credit cards come with really high interest rates and are great tools to tempt you into buying items you don’t need, there is a big perk to store credit cards: they’re more likely to approve people with low credit scores. Just be sure to only use the card to make one small purchase a month and then pay it off on time and in full. Unsubscribe to emails about deals and don’t even carry it around everyday in your wallet if you can’t resist the desire to spend. Read more here. 

Those unable to get a store credit card should apply for a secured card to build credit. With proper credit behavior, you can see your score rise and then you may qualify for a store card.

Here are our picks for two store credit cards:

The Walmart Rewards Card

Walmart Rewards Card

The information related to Walmart Rewards Card has been independently collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Walmart Rewards Card

Regular Purchase APR
26.99% variable
Annual fee
$0
Rewards Rate
5% back on purchases made at Walmart.com and on the Walmart app, 2% back on Walmart purchases in stores outside of the introductory offer, and 2% back at Walmart Fuel Stations.

The Walmart Rewards Card offers a great rewards rate. Earn 5% back on purchases made at Walmart.com and on the Walmart app, 2% back on Walmart purchases in stores outside of the introductory offer, and 2% back at Walmart Fuel Stations. The sign-up bonus has the potential to be an excellent value, too. Get 5% back for the first 12 months when you use your card with Walmart Pay for in-store purchases, upon approval. Just remember that your cashback rate on purchases in Walmart stores will go down after the intro offer ends, so after your first year with the card, make sure to do most of your shopping on Walmart.com or in the Walmart app to take advantage of the higher rate you get for shopping that way. Note that this is a store card, so you can’t use it outside the Walmart ecosystem.

The Target REDcard™ Credit Card

Target REDcard™ Credit Card

The information related to Target REDcard™ Credit Card has been independently collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Target REDcard™ Credit Card

Regular Purchase APR
25.15% Variable
Annual fee
$0
Rewards Rate
5% at Target & Target.com

The Target REDcard™ Credit Card offers great perks that are sure to please frequent Target shoppers. You receive a discount of 5% at Target & Target.com off every eligible transaction. The discount automatically comes off your purchase — no redemption needed. Other benefits include free shipping on most items, early access to sales and exclusive extras like special items, offers, and 10% off coupon as a gift on your REDcard anniversary each year.* Recently, cardholders received early access to Black Friday deals. Reminder: This card can only be used at Target and on Target.com.

Check If You Pre-Qualify

If you’re on the higher end of the spectrum, you may want to consider checking to see if you’re pre-qualified for any cards. This may help minimize your chance of rejection upon applying because pre-qualification performs a soft pull on your credit. This doesn’t harm your credit score.

Your goal in this credit range should be to use no more than 20% of your total available credit. Pay your bills on time and in full. And keep pumping that positive information onto your credit report until you reach the 700+ category. 

Who You Need to Avoid

Access to credit and loans may come easier than you expect, but that should also be a danger sign. There are several lenders who are willing to provide lines of credits or loans to people with poor credit. These options are often very predatory. If you’re simply trying to rebuild your credit history and improve your credit score, then there is no need to take these offers.

Here are the options you need to avoid when trying to rebuild credit:

1. Payday and Title Loan Lenders – There is never a need to take out a payday or title loan if you’re trying to merely rebuild or establish credit history. Most of these lenders don’t report to the bureaus and you’ll likely end up in a painful vicious cycle of borrowing and being unable to pay it down.

[How to get out of the payday loan trap.]

2. First Premier – The bank claims to want to offer people a second chance when it comes to their finances, but its fee structure and fine print prove the exact opposite. First Premier charges you a processing fee of up to $95 just to apply for a credit card. Then it levies a $75 annual fee on the credit cards and most cards only come with a $300 limit. You’re paying $170 for a $300 credit line! The APR is a painful 36%. In year two the annual fee reduces to $45, but then you’re charged a monthly servicing fee of $6.25. And to top it all off, you’ll be charged a 25% fee if your credit limit is increased. Stay away from this card! Use the $170 it would take to open the card and get a secured card instead.

3. Credit One – Credit One does an excellent job of confusing consumers into thinking they’re applying for a Capital One card. The logos are eerily similar and easily confused.

Creditone

Capital one

While Credit One is not as predatory as First Premier or payday loans, there is really no need to be using one of its cards to rebuild your credit score. For starters, Credit One cards have annual fees that range from $0 to $75 for the first year, then $0-$99 in subsequent years. If you’re approved for a card with an annual fee, it will be deducted from your initial credit limit. For example, receiving a $300 credit limit and $75 annual fee means you’ll only have access to an initial $225 credit limit. In addition, there is a high 19.49% -25.49% Variable APR. Given the high annual fees, we recommend saving your money and using a secured card with no annual fee to begin rebuilding your credit score.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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View Your Free FICO Score for all 3 Credit Bureaus

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners. This site may be compensated through a credit card partnership.

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View Your Free FICO Score for all 3 Credit Bureaus

There are lots of free credit scores floating around, but most of them are not the true FICO® score that lenders subscribe to and use as part of their decision.

However FICO® is working to change that by allowing banks and credit unions to give you free ongoing access to the real score they use to make lending decisions as long as you are an account holder.

One of the easiest ways for anyone to get their free FICO® score is via the Discover Credit Scorecard. You do not need to be a customer of Discover – anyone can register and get their official FICO® score for free. The data is from the Experian credit bureau. You can also get a free Experian FICO® 8 score by signing up directly with Experian.

To find out where to get your FICO® score from the other credit bureaus, read on.

Every bank chooses at least one of three credit bureaus to calculate a FICO® score: Equifax, Experian, and TransUnion. The FICO® score one bank uses can be different than another depending on which credit bureau they pulled a report from.

You may be able to get a free FICO® score from your credit card issuer or bank. Financial institutions belonging to the FICO Score Open Access Program offer this service. Visit this page for a list of participating banks. FICO® itself charges monthly for you to see your scores ($19.95, $29.95 or $39.95, depending on which plan you go with) — though they also throw in full copies of your credit reports, which the free bank scores do not.

Be aware that FICO rolled out the FICO Score 10 Suite in the beginning of 2020. This includes FICO Score 10 and FICO Score 10 T — the latter of which looks at trended data for a historical view of a consumer’s behavior. Under FICO Score 10, credit card debt will have a bigger impact than it used to, so it’s more important than ever to keep your utilization ratio less than 30%.

Here’s where to find your real, free FICO® scores from banks or credit unions anyone can join:

Equifax Scores

Citibank

  • Available with: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Score updated: Monthly
  • Where to find it: On your online account or the Citi app
  • Learn more

DCU Credit Union

  • Available with: Any credit card, or a checking account with direct deposit
  • Score updated: Monthly
  • Where to find it: Look for an invitation in your online account
  • Learn more

Huntington Bank

  • Available with: The Huntington Voice credit card – you will get a FICO® Bankcard Score 2 from Equifax
  • Where to find it: Log into your account and you’ll see a link

PenFed

  • Available with: PenFed members with active checking accounts, installment loans, and revolving lines of credit
  • Score updated: When PenFed refreshes – no set schedule
  • Where to find it: Login to your account and click ‘Your FICO® Score is Ready’
  • Notes: PenFed uses a more advanced ‘Next Gen’ FICO® score that has a different scale than traditional FICO® scores, with 150 as the lowest score and 950 as the highest score. Most banks use a score with a scale of 300 to 850. Because of this the score you see on PenFed’s site may be higher or lower than what you see from others.
  • Learn more

State Employees Credit Union of North Carolina

  • Available to all credit card holders

Experian Scores

Capital One and American Express regularly use Experian’s FICO® among others for credit decisions.

American Express

  • Available with: Any American Express credit card
  • Score updated: Monthly
  • Where to find it: On your online account

Discover

  • Available with: All Discover cards and if you are not a Discover cardholder, you can sign up to get your FICO® score for free by visiting creditscorecard.com.
  • Score updated: Monthly
  • Where to find it: On your statement and online

First National Bank of Omaha

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

USAA

  • Available with: Any USAA credit card
  • Score updated: Unknown
  • Where to find it: On your online account

Wells Fargo

  • Available with: Any Wells Fargo credit card
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

TransUnion Scores

Bank of America

  • Available with: Select credit card accounts
  • Score updated: Monthly, with history
  • Where to find it: Link available on your account summary page under the ‘Tools and Investing’ section

Barclays

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: Link available on your account summary page

Unknown Bureau

Other, less open to the public free FICO® providers include:

  • Ally, for auto loan holders.
  • Hyundai and Kia Motor Finance allow customers to view their FICO scores through their online accounts.
  • Sallie Mae offers a free, quarterly TransUnion score if you receive a new Smart Option Student Loan.
  • Merrick Bank doesn’t have open applications for its Platinum Visa, but does offer free scores to its cardholders.
  • Some credit unions with limited membership also offer scores, so check yours to see if it provides them.

Find the Best Credit Score for Your Needs:

The credit score that you are looking for varies, depending on what type of credit you are looking to apply for. Each credit score version has different benefits, and lenders pull certain scores in accordance with your application.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

If you’re simply looking to monitor your credit score and stay on top of your credit, either VantageScore or FICO® score will suffice.

New Credit Card

The best options: FICO® Bankcard Scores or FICO® Score 8 primarily; FICO® Score 3

Where to get them: Get your FICO® Score 8 from Credit Scorecard by Discover or freecreditscore.com

When applying for a new credit card, these scores are most likely to be pulled by credit card issuers. Lenders may pull your score from one or all three bureaus.

Mortgage Loans and Mortgage ReFis

The best options: FICO® Scores 2, 4, 5

Where to get them: Myfico.com for $19.95 a month

These scores are used in the majority of mortgage-related credit evaluations, with lenders pulling your score from all three bureaus. However, these scores are not free and can only be purchased at myfico.com.

Auto Loans

The best options: FICO® Auto Scores 2, 4, 5, 8, 9

Where to get them: Myfico.com for $19.95 a month

Auto scores are industry-specific and used in the majority of auto-financing credit evaluations. Lenders may pull your score from one or all three bureaus. Unfortunately, these scores are not free and need to be purchased at Myfico.com.

Personal Loans, Student Loans, and Retail Credit

The best option: FICO® Score 8

Where to get it: Credit Scorecard by Discover or freecreditscore.com.

For other financial products such as personal loans, student loans, and retail credit, FICO® Score 8 is best. This is the credit score most widely used by lenders, and they may pull your score from one or all three bureaus when making a decision.

LendingTree
APR

As low as 3.49%

Credit Req.

Minimum 500 FICO®

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

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LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.



As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.49% (3.49% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Other Scores and Their Value

FICO® Score 9 is not as widely used as FICO® Score 8. The benefits of this score are that it doesn’t penalize you for paid collections and reduces the ding you get from unpaid medical collections. See our review for more information.

The FICO® NextGen score is used to assess credit risk, but only a small number of lenders use it due to its 150-950 scoring range and older model.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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