Avoid Negative Credit Score When Cancelling a Card

23 Posts

in Credit cards
My understanding is that when you cancel a credit card (that was in good standing, i.e. balance fully paid), this then presents itself as a "negative" within your credit score. For years, I've avoided this by keeping cards I don't really want or need and making a small purchase every six months or so and then paying it off in full but this is becoming difficult to manage so would much rather get rid of the cards I don't need. Is there a way to do this without it having a negative impact on my credit score?
0
Latest MSE News and Guides
Replies
2023 £1 a day £54.26/365
I cancelled a credit card a couple of months ago and my score went down for 1 month then back up again.
The biggest impact of your credit file is having too much available credit from too many cards.
And the score is totally irrelevant
This appears to have reduced my rating despite all being paid and managed on time, the insight notifications I get regularly from experian and clearscore is that having 4k limit or above available would improve my rating.
I would agree with the 2 remarks above its striking the correct balance and having sufficient limits without causing detriment to yourself, maybe keep 2 cards including the one that has been open longest, and have a total limit of 6-7k available and rotate them
In some countries (e.g. USA) you do have a single score which is available to all potential lenders and is therefore important. In the UK this is not the case. The various credit reference agencies each come up with their own score, but this is based on the very limited amount of data they hold. For example, it does not include any information about your income. It is not available to anyone except you. Also be aware that they each use the score that they generate to encourage you to spend money on things that will improve your score (via their 'insight notifications') such as additional credit cards - interestingly, things that also make money for them!
By contrast, actual lenders each score you (differently) using data that you provide in an application for credit as well as the data from their preferred credit agency or agencies. These are the scores that matter, but you will never see them as they are kept secret by the lenders.
In other words, completely ignore all reference by credit agencies to your score. Nobody can actually know how you can improve the (secret) scores determined by actual lenders. You can only have a vague idea what they will think is important, and this will differ widely between lenders. That's why you should check the likelihood of getting credit on the web sites of particular lenders, and not rely on comparison sites that again are a third party's guess at what might be important.
I have learned from others on here is that what you think is a good course of action is not necessarily what the lender thinks, for example closing a card or reducing a limit - there is no indication given as to who requested or actioned this so in theory it could go against you.
Experian appears to be the main agency used, I no longer take insight data 100% for granted as an example experian rate me as 0% eligible for 2 lenders, when on the actual site of the lender I am pre-approved - strange but true
It's absurd to think that people are forced into keeping financial accounts open otherwise they'll be viewed negatively by other lenders.
As someone who has previously worked for a bank, and above bog standard customer level, I have no issues closing down unused lines of credit or any financial account for that matter, and have never had any problems obtaining credit when needed.