3 Signs It’s a Bad Time to Cancel Your Credit Card

You have the right to close a credit card at any time. If you're not using one anymore because you've gotten better credit cards, or if you've had an issue with the card issuer, you can contact customer service to cancel it. 

But this isn't always the best decision, and it could affect your credit score. If any of the following is true, consider hanging on to your credit card for the time being.

1. It's been less than a year since you opened it

Card issuers don't mind if you close a credit card, but they generally frown on doing it within the first year. That's especially true if you earned a welcome offer. If you earn a $200 welcome offer with a cash back card, and then you cancel the card after six months, your card issuer could be unhappy with you.

At a minimum, the card issuer might not approve you for any more cards in the future. Some card issuers will even claw back your welcome offer -- withdrawing the rewards you earned from your account.

It's best to wait until you've had a card at least one year before you cancel it. What if it has an annual fee? You may get a refund if you cancel within one month of the fee being charged. This depends on the card issuer.

2. You're in credit card debt

If you're in credit card debt, canceling any of your cards could hurt your credit. Doing so will affect one of the main factors in your credit score, your credit utilization ratio. That's your card balances divided by your credit limits. Having lower utilization is better for your credit.

Let's say you have two credit cards, each with $10,000 credit limits. The first card has a balance of $5,000, and the second is paid off. In total, you have $5,000 in balances and $20,000 in total credit across those two cards, for credit utilization of 25%. That's a relatively low utilization that wouldn't damage your credit score.

If you decide to close the second card, you'll lose its $10,000 credit limit. You'd still have a $5,000 balance, but with only one card's $10,000 limit, your credit utilization would be 50%. Anything over 30% can hurt your credit, so closing a card could have a serious impact.

3. You don't have any other credit cards

It's rarely a good idea to cancel your only credit card. If you use a credit card and pay the bill on time every month, it builds your payment history. That's the most important factor in your credit score. You won't be building credit by paying with a debit card or cash. Credit cards also allow you to earn rewards on your spending, and they have excellent fraud protection.

Even if you don't like your current credit card, look for another one first. After you've applied for a new card and received it in the mail, then go ahead and close the card you don't want.

While there's nothing wrong with canceling a credit card, remember that there are often other options. If you're not using the card, you could still keep it open in case you need it later. And if you're planning to close it because it has an annual fee, you may be able to downgrade it to a no annual fee card instead. Consider asking the card issuer if that's an option before you decide to close your card.