What's the Penalty for Canceling a Rewards Credit Card?
Why you might want to hold on to that account.
Question: If I get a rewards credit card that waives the annual fee for the first year and cancel the card before it charges the fee, will that affect my credit score? -J.B., Harrisburg, Pa.
Answer: You can generally close a credit card whenever you want, but doing so could lower your credit score, says John Ulzheimer, an expert on consumer credit. The new card's credit limit is added to your "credit utilization ratio," which measures the portion of your available credit that you've used. If your balance across all cards remains the same but you close one card, your utilization ratio will rise, which could hurt your score. You can minimize the impact of canceling a credit card if you pay down your balances and keep your charges low on all of your cards.
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As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
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