credit & debt

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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