Is it bad to apply for a credit card and then cancel it?

The Catch-22 of Cancelling Credit Cards: Is It Ever Okay to Close an Account?

The world of credit cards can feel like a minefield, and canceling a card can seem particularly daunting. Is it a harmless act of financial spring cleaning or a potential credit score killer? The truth is, it depends on who initiates the cancellation.

Applying for and then subsequently closing a credit card you initiated generally won’t wreak havoc on your credit score. Perhaps you signed up for a card with a tempting introductory offer, reaped the rewards, and now the annual fee is looming. Or maybe you’ve simply consolidated your spending onto another card with better perks. In these scenarios, canceling the card is usually a low-risk move. The initial hard inquiry from your application will remain on your credit report for about two years, but the impact of this diminishes over time.

However, there’s a critical distinction to be made: bank-initiated cancellations are a different story entirely. These are typically the result of delinquent accounts, missed payments, or other violations of the cardholder agreement. A bank-initiated closure is a serious black mark on your credit report. It signals to lenders that you’re not a reliable borrower, and this can significantly damage your creditworthiness, making it harder to secure loans, mortgages, and even other credit cards in the future. The negative impact can linger for up to seven years.

So, while applying for a card and later canceling it yourself usually won’t significantly impact your credit score, it’s not entirely without consequences. Closing a card can affect your credit utilization ratio (the amount of available credit you’re using), particularly if you have a limited credit history or few other open accounts. A higher utilization ratio can negatively impact your score. Furthermore, closing your oldest card can shorten your credit history’s length, which is another factor that influences your overall creditworthiness.

The takeaway? Responsible credit card management is paramount. Before applying for any new credit card, carefully consider your needs and whether you’re prepared for the long-term commitment. Chasing short-term rewards without considering the potential long-term impact on your credit utilization and history can ultimately backfire. If you do decide to close a card, make sure all outstanding balances are paid in full and the account is closed properly. And, above all, avoid missing payments or defaulting on your credit card obligations. This is the surest way to avoid a damaging bank-initiated cancellation and keep your credit score healthy.