Applying for a credit card and then canceling it can be seen as a negative action by some, but is it really bad to do so? In this article, we will delve into the implications of applying for and canceling a credit card, exploring both sides of the argument.
Firstly, let's understand why someone might apply for a credit card and then decide to cancel it. There are several reasons why someone might apply for a credit card:
- Introductory Offers: Credit card companies often offer lucrative introductory offers that include zero or low interest rates on balance transfers or purchases for a certain period. If the user does not meet the criteria or simply changes their financial situation, they may choose to cancel the card.
- Avoiding Overuse: Some people apply for credit cards with the intention of using them sparingly or only for emergencies. If they find themselves overusing the card or unable to manage the debt, they may decide to cancel it.
- Short-term Need: A temporary need for extra cash or rewards points could lead someone to apply for a credit card, which they would then cancel once the need has passed.
Now, let's explore the potential consequences of canceling a credit card:
- Credit Score Impact: Canceling a credit card can have an impact on your credit score. Each time you apply for and close a credit card, it results in a hard inquiry on your credit report. While multiple inquiries within a short period might not significantly affect your score, consecutive or frequent inquiries can potentially lower it. However, if you have a good history of managing your credit responsibly, the impact should be minimal.
- Fees and Penalties: Some credit card issuers charge fees or impose penalties for early cancellation. These fees can range from $50 to $150 or more, depending on the card and the terms of the agreement. It's essential to read the terms and conditions before canceling to avoid unexpected charges.
- Rebuilding Credit: If you have had a history of missed payments or defaulted on other loans, canceling a credit card could potentially help rebuild your credit score by reducing the number of accounts on your report. However, it's important to note that rebuilding credit takes time and consistent responsible behavior.
It's also worth considering the long-term implications of canceling a credit card:
- Losing Rewards: Many credit cards offer sign-up bonuses, cashback rewards, or points that can be valuable over time. Canceling a card before these rewards are earned or expired could result in lost value.
- Potential Missed Benefits: Some credit cards offer benefits such as extended warranty coverage, travel insurance, or discounts on specific merchants. Canceling a card without fully utilizing these benefits could be a missed opportunity.
- Credit Card Utilization: If you have a high credit card utilization ratio (the amount of outstanding balance compared to your total available credit), canceling a card could help reduce this ratio and improve your overall credit health.
In conclusion, whether it's bad to apply for a credit card and then cancel it depends on various factors. If you apply for a card with the intention of using it sparingly or only for a short-term need, and you find that you're unable to manage it properly, canceling it could be a smart decision. However, if you're canceling a card because you're unhappy with its terms or fees, or if you're frequently closing cards without a valid reason, it could negatively impact your credit score and financial health.
To make an informed decision, consider the following:
- Read the Terms and Conditions: Before canceling a credit card, thoroughly review the terms and conditions, including any fees or penalties associated with early cancellation.
- Consider Your Financial Situation: Evaluate your current financial habits and priorities. If you find that you're consistently overspending or struggling to manage your debt, it might be wise to cancel the card and focus on improving your financial habits.
- Maintain Good Credit Habits: Whether you keep or cancel a credit card, it's essential to maintain good credit habits. Pay your bills on time, keep your credit utilization low, and avoid unnecessary credit inquiries to protect your credit score.
In conclusion, while there are potential downsides to canceling a credit card, it's not inherently bad behavior. The key is to approach the decision thoughtfully, considering both the immediate needs and long-term financial goals. By being aware of the potential impacts and maintaining responsible credit management, you can make informed decisions about whether to cancel a credit card or keep it.