Should I Close My Credit Cards That Have A Low Credit Limit. Well, you have been having a credit card for some time now and suddenly, you realize that one has a very small limit. Perhaps, you have asked yourself the following question, Should I close my credit card with a low credit limit? It is an issue that almost every person will ask him, or herself at some time in his or her financial life.
Closing a credit card is serious decision that may affect not only current consumer credit status but also further financial behavior.
Well, let’s discuss what it actually means to close a low-limit credit card, whether it is possible to make the right decision here, and how to do that. Let me dissect the major things you should know: benefits and drawbacks of closing low-limit cards, how it influences credit score, main options to consider instead.
What Does Having a Low Credit Limit Mean?
But first things first, let’s clarify what in this context is meant by a term ‘low credit limit.’ A low credit limit usually means credit card that allows card holder a low level of credit limit for spending or credit limit one can take. For example, if your credit limit is $500 or $1,000 then it might can be considered low compared with the credit cards with thousands credit limits.
Well, how is your credit limit decided? The following elements also contribute to this; your credit score, your income, credit history, and your expenditure. Sometimes, you discover that having had your card for some time and rarely using it, the issuer has not adjusted your limit, even if you are in a better financial position now.
It may arrive at a point where you contemplating the desirability of maintaining the card. However, when it comes right down to the decision of whether or not to close it, you need to consider that you lose something that is important to your financial health , even if it is not immediately apparent.
The Impact of Closing a Low Credit Card on Your Credit Score
When it comes to closing a credit card, one of the biggest worries is the effect it would have on your credit score. As it is explained, Your credit score is affected by a number of parameters, two of which are the current amount of credit utilized by you and how long the credit was used. Let’s delve into it:
Credit Utilization Ratio
This is simply the ratio of the amount lent out to the amount of credit that has been extended to you. Suppose you have a $500 limit on one card but a $2000 limit on the second card.
If your balance on the first card is 250 you will have a ratio of 50 percent. If you decide to close that credit card your available credit shrinks that will likely increase the ratio of credit utilization on the second card and result in a drop in your credit rating.
Credit History Length
This can result from the closure of an old credit card as part of a user’s credit history which makes up approximately 15% of your credit score and shorter durations of histories. If history is longer than expected and there is positive credit usage, it can work to your advantage especially when the card has been in use for a long while. By closing it, you risk hindering the impact on the score of this particular point.
Is it true that Cancelling a low limit credit card will always reflect negatively on your credit? Not really, it depends on several factors like total credit utilization, how long you have had the credit card.
Pros of Closing Low Credit Limit Credit Cards
There are some benefits when you choose to cancel a low limit credit card and in this light let us consider some of the reasons.
Reduce Temptation to Overspend: Sometimes having access to credit, can lead to overspending and an overreliance on a low limit card can land you in debt, so for this reason, it is better to cancel the card.
Simplify Your Finances: Juggling with too many low-limit cards can become a pain especially if you have multiple, in this case, to make your life easier, you can cancel one of the cards and spend fewer resources managing or tracking bills that you have to pay.
Avoid Annual Fees: There is a trend where low limit cards come with annual fees which shouldn’t be the case but for those using the card only rarely find it worthwhile paying such fees. Thus, in these circumstances, it may be wiser to delete the card.
Cons of Closing Low Credit Limit Credit Cards
Another issue that you need to keep in mind before taking the decision to close a low credit score card is:
Negative Impact on Credit Score
Closing of a credit card can reduce your credit score, mainly if it is an old card or it further reduces your credit utilization ratio, as already indicated. So if you’re planning on making a large purchase, applying for a loan or a mortgage any time soon this could be an issue.
Loss of Credit History
Closing a card that has been held for a considerable time may have the detrimental effect of reducing the age of your credit history and remember the older your credit history, the more favorable it is for your rating. You then have to ask yourself if that is something you can cope with.
Lost Rewards and Benefits
Cash back, travel points and purchase protection are some of the bonuses associated with the use of credit cards. For example, if the card you’re contemplating closing pays for purchase protection, you will lose that benefit when you close it. So know what benefits you will be losing.
Potential for Higher Interest Rates on Other Cards
Closing a card with a low limit will reduce your total credit available resulting in an increased utilization rate on other cards you might be using. Because of this, your credit rating will fall which will in turn push up the interest on any existing balance remaining on your cards.
When Should You Consider Closing Your Low-Limit Credit Card?
Exiting a low limit credit card tends to be a decision fraught with nuances. However, there are certain instances when this may be the right decision for you. Let’s examine these situations thoroughly so as to enable you to make an informed decision.
1. You’re Not Using the Card
If you realize that the low limit credit card is never used then it may be time to close it. There are several reasons why this may be the case:
You Don’t Need It Anymore
When you have several credit cards that you hardly ever use, let alone a singular one, it becomes a redundant feature in your wallet or dashboard. In fact, the low-limit card is of no assistance during the establishment of your credit profile.
You’ve Outgrown the Card
Yes, it is quite acceptable for your monetary desires and objectives to change with time. Once one not only changes his or her card to one with better benefits and a higher limit, maintaining the low limit card becomes redundant. For instance, once hitting a good score one no longer requires a low limit card solely for the purpose of building one’s credit.
No Impact on Credit Score
As long as a card is not negatively affecting your credit score, it may be best to keep it active. This is true as long as your total credit utilization is low. But if the case is that the card is just sitting there and you are not really making use of it, then keeping it in your account does not seem reasonable.
Why You Might Close It
If you’re not utilizing a particular card, you have no reason to keep it around. But do check for any annual maintenance fees or other fixed charges you may have to pay before going ahead. You would rather not have a card incurring fees while not really using it as it would mean incurring unnecessary expenses.
2. Your Credit Score Is in a Good Place
Your credit score dictates your financial freedom: it determines how much interest the lenders will charge you, whether you’ll qualify for a loan or not, as well as if you can rent a house. Don’t worry, You can go ahead and close a low-limit credit card without worrying too much about the impact if your credit score is already fairly decent.
Strong Credit Score
If you’ve been making your payments regularly and keeping the amount charged on your credit cards low, it’s possible that the impact of closing a low-limit card opposing what’s stated above is going to remain contained. Credit scores aren’t exclusively about the number of active accounts you maintain as it is about efficiently operating the accounts.
Not Planning on Major Purchases
Assuming you don’t have plans of pursuing a mortgage or taking out a new vehicle on loan any time soon, you won’t feel much of the impact of dropping a credit card on your overall score.
And in the long run, you could also expect to see some of the negative effect of closing the card you maintained getting settled that is, as long as you’re taking care of your overall credit profile.
Why You Might Close It: If you cherish your credit score and believe that closing the account in question would not have any significant consequences, then it shouldn’t be much of an issue. Low-rated cards could be closed as a means of executing an account cleanup without the fear of molesting the credit rating.
3. You’re Paying High Fees for a Low-Limit Card
Yes, some such cards can have a hefty annual fee or a high rate of interest so they become an expense especially if the card in question does not have much to offer. Again, if the card in question would charge more in fees than what it had to offer, it would be prudent to let the card go in order to save in the long term.
High Annual Fees
Some credit cards for a limit of $,200 ,enance and s50 maintenance fees which seem to be lowfor the reason that it Requires S200 To Obtain.A Form Of It’s Easier To Close The Loops On Not Using This Card Too Much And Paying For The Fees. It is also beneficial to pay attention to the ratio of the limit to the cost of an annual fee. Such as for an example the rebate which A30$ would not make an ecuittamt amouing.
No Significant Benefits
For one it wouldn’t and it would feel like point tayre on one,t backlash or against the wall, This Card Needs There’s no cashback, no rewards, blank miles and no other sweeteners. Purely a paid card with no benefits. And if this would , it feels more like a fee to pay. In Such Situations, Cancelling The Card Would Help Prevent Unnecessary Costs.
High Interest Rates
It can make paying off any credit card easier, a very low limit credit cue can attract a very high interest credit yeah if there is no payment which might seem attractive when considering to quite however, as already mentioned that what might seem attractive can be extremely expensive in the end assuming there is no full payment made on a credit card being permanent.
Why You Might Close It: The card has high costs but does not offer enough to make that cost worthwhile. That means, it is okay to close the card. This will prevent you from incurring high interest fees, which is a key aspect if you are reducing your unnecessary expenditures.
What Are the Alternatives to Closing a Low Credit Limit Credit Card?
Here are a few options you can think about before you make an absolute decision to go ahead and close the card:
- Request a Credit Limit Increase: Your Issuer of the Card may allow you to ask for a higher limit. This will enhance the credit utilization ratio hence the decision to close the card will not be so appealing.
- Consolidate Your Debt: If you have several cards with balances then avoid them and have all of the limits in just one card as it has a higher limit. This means any overuse in one card will lead to a high utilization ratio hence less credit usage.
- Switch to a Secured Credit Card: If your concern is about your credit, but as a consumer you want to build credit, then a secured credit card would be the best option instead of getting unsecured ones as these cards usually come with a deposit.
How to Safely Close a Credit Card Without Damaging Your Credit Score
In case you have made up your mind to close your credit card with a low limit, try following these suggestions to avoid hurting yourself:
- Pay off the Balance: Fully settling off the card is a must otherwise one would owe the credit card company money and it might hurt their credit standing.
- Consider Your Credit Utilization: Closing the card would result in limiting the amount of credit available to a person. So the remaining cards have to be dealt with so that the ratio of credit utilization does not go beyond 30%.
- Contact the Issuer: It’s best to alter or cancel the credit card. Get in touch with the credit card provider in order to verify that the card has been canceled. And always ask for written proof for this as well as double checking the credit report in case there was such a common issue of the card being marked as “closed” and “good standing”.
My Opinion
So, is it worth closing the credit card with the low limit? It ultimately is down to the financial circumstances of a person whether closing it is an optimal choice.
In case the card is not being used frequently but has fees that are costly to maintain then for such people closing it might be wise. But for someone who has a hard time with their credit score because of it, other options like having the card for longer or having a constant requesting strategy for the limit may be best.
Green-minded people understand that making changes to your credit accounts is a big step and there’s always the good and the bad, which is why it’s best to confer with a financial adviser if you are not certain.
