Did you open a new credit card while on vacation? Why you shouldn’t rush to cancel

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In some cases, more purchasing power can be to your advantage.

The holiday season is when many people tend to shop, and it’s no surprise. He may have decided to open a new credit card if he wanted to increase his spending power over the year-long holiday season.

But what if you’re back to your normal spending routine now and don’t plan to use that credit card in the near future? You may be inclined to close that account. However, doing so can have a negative impact on your credit score.

Credit card closures can hurt you

The length of your credit history plays an important role in determining your credit score. So closing a credit card that has been open for a long time can hit your credit score.

However, in this situation, we are not talking about closing a long-standing account. Rather, we are talking about closing a recently opened credit card. Also, canceling an account that has only been open for a month or so is not a big deal in terms of the length of your credit history.

But that doesn’t mean it’s right to close your credit card. That credit card could be contributing to your credit score without you even realizing it.

Another big factor used in calculating your credit score is your utilization rate, or the amount of credits you can use at one time. Generally speaking, a credit utilization of 30% or less has a positive impact on your credit score. However, over 30% utilization can lower your credit score.

For example, say you open a new credit card with a $3,000 credit limit while on vacation, and before that, your old credit card had a $10,000 credit limit. You may have a $3,500 balance on your credit card by carrying forward old debts while on vacation and adding them to your total.

If the credit limit of various credit cards is $13,000, the utilization rate is about 27% if the balance is $3,500. This is below the threshold to start sneaking into the danger zone.

But let’s see what happens when we close the newly opened credit card. Suddenly my credit utilization is 35% because my total limit has been reduced, which is not really what I want.

So it may make sense to use a credit card that you think you will not use often. Closing it can hurt your credit score for no good reason.

Find a safe place for rarely used credit cards

You can carry your credit card in your wallet so you can use it at all times. Don’t keep a recently opened credit card in your wallet if you won’t be using it right away. Rather, keep it in a safe place. One less card to worry about if you lose your wallet.

If you have a safe at home, insert your credit card there. Otherwise, remember to find a safe place to check it in case you ever need to use that credit card.