You finally managed to earn your first substantial salary, and now you have this credit card, which was issued to you when you were still studying in college and you had to pay $95 per year for it, getting numerous services which you did not need. The closing of this card looks quite logical for you. Nevertheless, before taking such an action, you have to make sure that you are doing everything in the proper way.
First of all, you have to realize how this card will affect your credit score. Though you may think that this action will positively affect your credit score, this situation may cause some problems and may harm your credit score a little bit. The credit history is one of the components which has a great impact on your credit score. This credit card, especially if this is your first one and you have used it for a long period of time, is a part of your credit history. Thus, closing it will reduce the average age of your credit history.
Now we come to the key point. First of all, you should pay off all of your debts in this card. Pay your balance until its end. Even if there is some minor debt left on your card, the interest can accumulate on it even after its cancellation, and your debt will be sent to the collections. In order to avoid such a problem, you can contact the company, get information about your debt on the card and pay it off. Also, you should ask representatives whether they will refund you your annual fee.
Do not forget that during this conversation, you have to directly tell them about your intention to close this card. The representative may try to persuade you to keep the card, offering you something in return, like reduced annual fee or additional reward points, for example. You should evaluate this offer and decide whether it is beneficial for you or not. For example, if they will waive your annual fee of $95 for a year, it can be worthy for you to keep the card in order to save your credit history. In case if you are decided to close your account, you should ask the representative to give you a confirmation of the card closure and your zero balance. In addition, you can send a letter via post office or online secure messaging service.
I would also like to remind you that this process can negatively affect your credit utilization. This metric demonstrates what percent of your total credit limit you are using. In case if you close your card, your credit utilization will become significantly higher and will be considered as a bad signal for the lender. For example, if you have a debt of $2,000 on two cards with the total credit limit of $10,000, your credit utilization will be equal to 20%. In case if you have a card with $5,000 credit limit and you close it, your credit utilization will be equal to 40%. If your credit limit on the other card is significantly high, this fact will not have a great impact on your credit score.
In conclusion, you have to keep in mind that this step cannot be taken easily. You have to preserve your credit history, pay off your debts and take into account the possible consequences. You are creating a financial base for your future life, and now you have to do it properly. Well, at least, you are solving these issues and not, for example, assembling this cheap IKEA desk. This product has destroyed at least two of my friendships 😅.