With the holidays right around the corner, it may be the perfect time to take advantage of credit cards. Many credit card companies offer credit card rewards, such as 0% introductory rates or bonus points, exclusive for the holiday season.

And while many of these credit cards can still be used normally after the holidays, some lose their value after their promotional periods end. So what do you do? Should you cancel your rewards credit card after the holidays?

Does The Card Still Provide A Financial Benefit?

If you took out a holiday-exclusive rewards credit card, it can make financial sense to cancel it after the holidays. This is especially true if the annual fee and the interest rate are high, which is common for many of these cards.

That being said, a credit card, regardless of whether it comes with additional perks, is still an amazing financial tool. Simply because it gives you access to a line of credit that you can tap into during a financial emergency.

Credit cards are also great for building good credit. Having good credit generally results in better offers on future loans and other credit cards, such as low-interest rates, which can save you a lot of money in the long run.

Does The Card Offer Nothing But Temptation?

Credit cards can make overspending easier. This can result in unnecessary high-interest credit card debt, which can make paying on time harder, resulting in not only your financial damage but credit damage as well. 

If having a credit card beyond the holidays serves no purpose aside from temptation, it can be a wise decision to cancel it. If, on the other hand, you can keep your impulses at bay while keeping the card for emergencies, then keep it.

Does Canceling A Credit Card Affect Your Credit?

A credit card can directly influence your credit in a number of ways. The major one is through your credit utilization ratio, which refers to the amount of available credit you’re using at a given time.

Canceling a credit card can raise your credit utilization. To explain, let’s assume you have 2 credit cards:

• A – a general-purpose credit card.

• B – a card you opened for holiday rewards.

If card A has a balance of $500 and a spending limit of $1,000 while card B has no balance and a limit of $1,000, your credit utilization ratio is 25%. Canceling card B, however, results in a 50% credit utilization ratio.

You need to maintain a credit utilization ratio of under 30% at all times to prevent your outstanding credit card balances from negatively affecting your credit. The lower your ratio, the better it is for your credit health.

Note that canceling a credit card also reduces the average age of your credit history and impacts the diversity of your credit accounts, both of which are key factors that credit-scoring companies, such as FICO, look at when calculating your credit score.

The Bottom Line

Whether you should keep a credit card beyond its holiday-exclusive reward period ends ultimately depends on your unique circumstances. Do understand, however, that canceling a credit card can negatively affect your credit.

Fortunately, there are numerous ways to improve your credit. One of these is credit restoration, the process of removing negative information from your credit report. Call us at 888-799-7267 to schedule a Free Consultation.