Does Closing a Credit Card Hurt Your Credit Score?

If you have a credit card account you don’t use anymore, you may wonder whether it’s better to close the account or keep it open. Canceling your unused card seems like a straightforward decision, but could closing a credit card impact your credit score? Let’s take a look at everything you should consider before making this move.

Impact of Credit Card Closure

When it comes to keeping a healthy credit score, credit utilization ratio and credit history are the two key factors. Closing a credit card may affect both. The impact of closing a card depends on your unique credit profile and financial goals.

First, your credit utilization ratio represents the percentage of your available credit that you're currently using. Generally, lenders view lower utilization as more favorable. For example, if you have two credit cards, each with a $5,000 limit, and you regularly spend $1,000 a month on one, your utilization ratio is 10 percent. But if you close one of those cards, your total available credit is cut in half, and your utilization ratio jumps to 20, even though your spending hasn’t changed. Higher utilization can signal to lenders that you are a greater default risk, which could lower your score.

Second, the longer your credit history, the better your credit score. Closing a credit card might reduce the overall length of your credit history, especially if it’s your oldest account. This could cause your score to dip since credit-scoring models favor accounts that have been open for a longer time. Lenders typically like to see a longer track record of responsible credit management.

Average Age of Credit Accounts

One of the chief inputs into your credit score is the length of your credit history, which you’ll see referred to as your “credit age.” Credit-scoring models like FICO and VantageScore consider this when calculating your score, and it’s weighted significantly. In fact, credit age accounts for 15 percent of your FICO score and is considered “highly influential” by VantageScore.

A longer, well-maintained credit history shows lenders that you have been able to responsibly manage debt in the past, which means you’re less likely to default. But when you close a credit card, you are effectively removing that account from your active credit history. This reduces the average age of your accounts, especially if the card you close is one you’ve had for many years. For example, if you close one of your oldest credit cards, the overall age of your credit portfolio will decrease, which could lower your score.

Credit Utilization Considerations

While credit age matters, it’s not the most significant element affecting your score. The largest component, accounting for around 30 percent of your score, is your credit utilization ratio. This ratio represents the amount of credit you’re using compared to the total credit available to you.

Let’s say you have two credit cards: one with a $1,000 limit and another with a $2,000 limit, and you currently have a balance of $750 across both. That gives you a credit utilization ratio of 25 percent ($750 out of $3,000). If you close the card with the $1,000 limit, your available credit drops to $2,000, and your utilization ratio jumps to 37.5%. Lenders typically prefer a credit utilization ratio below 30 percent, so an increase may cause your score to drop.

Effect on Available Credit

Closing a credit card directly impacts the amount of credit you have available. When you lose the available credit tied to the closed card, your total available credit shrinks, which also makes your credit utilization ratio increase. And because this ratio is so heavily weighted when it comes to calculating your credit score, this may result in a drop in your score, depending on your overall credit profile. Ideally, you want to have a lot of available credit, while only using a small portion of it, so it often behooves you to keep a credit card account open.

Credit Type Importance

Your credit mix describes the variety of different types of credit accounts in your portfolio, such as credit cards (revolving credit), student loans, auto loans, and mortgages (installment credit). A well-balanced mix of both revolving and installment credit types may boost your score – it shows lenders your ability to responsibly manage various forms of debt.

While having a diverse credit mix is beneficial, it accounts for only about 10 percent of your overall score. If you close a credit card and don’t have other forms of revolving credit, that could slightly lower your score because revolving credit plays a unique role in demonstrating ongoing debt management. Lenders look favorably on borrowers who can handle different credit types and show long-term stability with all of them.

Credit Mix and Closure

Keep in mind that closing a credit card may slightly reduce the variety in your credit mix, especially if it’s your only form of revolving credit. But – that impact is generally minimal compared to more significant factors like credit utilization and credit history length. Maintaining a balance between revolving and installment credit accounts over time can help mitigate any small drop from closing an account.

By the same token, it’s important to avoid opening new accounts just for the sake of improving your credit mix. This strategy could backfire since it adds hard inquiries to your report. Those hard inquiries could lower your score in the short term, and they may increase your overall debt, which impacts your credit utilization. Opening new credit without a clear financial need can also be seen as risky behavior by lenders.

When Closing a Credit Card Might Make Sense

In some cases, closing a credit card could be the right move, even if it slightly impacts your credit score in the short term. Here are some situations where it might be worth it:

• High annual fees: If your credit card charges an annual fee and you’re not using the benefits, it may not be worth keeping. Before closing the card, consider downgrading to a no-fee version to maintain your account history.
• Temptation to overspend: If you struggle with managing your spending and tend to max out your cards, closing an account could help reduce temptation. Just be mindful of how this decision affects your credit utilization ratio.
• Financial lifestyle changes: If you’re entering a phase of life where you need to simplify your finances – such as paying off debt, retiring, or consolidating accounts – closing a card can streamline your credit profile. However, make sure that taking this step won’t tank your credit score.
• Potential for fraud: If you rarely use your card and are concerned about it being compromised by identity theft, closing it may give you peace of mind. However, monitoring the account regularly can also help detect unauthorized charges while still keeping the account open. In addition, cards like the Juzt Digital Credit Card integrate sophisticated digital security measures to safeguard user data and prevent fraud, so they may be a good choice if you’re worried about identity theft. 

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The Rise of Digital Credit Cards: Pros and Opportunities

In today's fast-paced, digital-first world, the way we manage our financial transactions is rapidly changing. And one innovation that’s leading the charge is the virtual credit card – a digital version of a traditional credit card that offers enhanced security, flexibility and convenience. As both online shopping and cybersecurity concerns have grown, digital credit cards have become more and more popular, giving consumers and businesses a safer and more efficient way to handle payments.

What Are Virtual Credit Cards?

Virtual credit cards are digital cards that financial institutions issue – they are usually connected to an existing bank or credit account. Unlike traditional plastic credit cards, virtual credit cards exist only through your smartphone, tablet or computer. These cards come with a unique set of credentials – including a card number, expiration date and CVV code – that may be generated specifically for a single transaction or a limited period. In these cases, once your transaction is complete, the card details become invalid, which gives you a robust defense against fraud and unauthorized card use.

This disposable nature makes virtual credit cards an attractive option if you’re concerned about online security. Even if hackers intercept your card information, the data become useless after your purchase.

The Rise of Digital Credit Cards

The rise of digital credit cards is closely tied to the growth of digital technology – plus evolving consumer need for more secure, efficient and flexible payment methods.

With the rise of the internet in the 1990s, e-commerce exploded, and credit cards became a must-have for online shopping. At the same time, consumers and merchants began to realize the need for more secure payment methods, since sharing credit card details online opened the door to fraud. Virtual credit cards were introduced as a response, allowing users to generate temporary card numbers for safer online transactions.

The 2010s saw the rise of mobile wallets like Apple Wallet and Google Wallet, which allowed consumers to store credit card information on their phones and make contactless payments. These apps began integrating with digital credit cards, further driving their adoption. Virtual card numbers offered extra layers of security and fraud protection by masking actual card numbers during transactions.

Digital wallets introduced even more convenience by allowing users to make payments without evening needing a physical credit card – instead, a simple tap of their phone could make a purchase. Instant card numbers, available immediately after account opening, made the process even more seamless, allowing for immediate access to credit without waiting for the card to arrive in the mail.

In the wake of the COVID-19 pandemic, digital payments boomed as contactless, online and app-based shopping became the norm. Financial institutions responded by expanding access to digital credit cards. And today, digital credit cards are widely offered by most major credit card issuers, and they are integrated with many everyday digital services. This shift from physical credit cards to digital cards has changed the way many consumers think about payments and security. And they continue to rise in popularity.

It’s also important to note that, if you so choose, a digital credit card doesn’t have to entirely replace your physical card. Most credit card issuers will send out a physical card if you need it. Source

How Credit Cards Work In The U.S.

 

CNBC Marathon takes a look at how credit cards work in the U.S., including major industry players like Visa, Amex, and Discover.

$6.7 trillion. That is how much Americans spent using their debit or credit cards in 2019. More than 60% of those purchases were made using cards from Visa, a company that has long dominated the payment card industry. As payment cards become more essential in our daily lives, Visa has quickly grown to become one of the most valuable companies in America. So how exactly does Visa make money and why does it dominate the payment card industry?

6 Credit Card Tips For Smart Users

Used responsibly, a credit card can be a very helpful financial tool. Making consistent, on-time payments can boost your credit rating, and some cards offer rewards for purchases or even a 0% interest rate for a short period of time on balances transferred from other credit cards.

But if your credit spending gets out of control, monthly payments and accumulated interest can become a problem. Follow these credit card tips to help avoid common problems:

1. Pay off your balance every month.

Avoid paying interest on your credit card purchases by paying the full balance each billing cycle.1 Resist the temptation to spend more than you can pay for any given month, and you’ll enjoy the benefits of using a credit card without interest charges.

2. Use the card for needs, not wants.

A credit card should be used carefully. Frivolous purchases can lead to debt. Credit cards can be used in emergency situations, such as a mobile phone bill that’s due before your next payday. Use the credit card as a temporary loan to yourself, and then pay back the amount as soon as you can to decrease or avoid interest charges altogether.

3. Never skip a payment.

Pay your bill every month, even if the minimum payment is all you can afford. Missing a payment could result in a late fee, penalty interest rates and a negative impact to your credit score.

4. Use the credit card as a budgeting tool.

If you’re confident you can use a credit card responsibly and pay off the balance every month, try using it as a budgeting tool. By making all of your purchases with your credit card, you can see exactly how much you’ve spent at the end of the month. Of course, you should only do this if you know you can pay off the balance each month. To make sure your credit card spending doesn’t get out of hand, never charge more to your card than you have in your bank account.

5. Use a rewards card.

If you’re using a credit card for most or all of your purchases, it makes sense to use a card that offers rewards. Not only can you avoid paying interest, but you’ll also earn rewards such as cash, airline miles or retail points.

6. Stay under 30% of your total credit limit.

One way to keep your credit score healthy is to keep your credit utilization ratio under 30%. This credit utilization ratio is the percentage of total available credit that you’re using. For example, if your limit is $1,000 you should keep your balance under $300. But the ratio applies to the sum of all your cards – so if one credit card has a $3,000 limit with a $3,000 balance and a second card has a limit of $7,000 with no balance, you’re right at the 30% mark ($3,000 of an available $10,000) which is where you want to be. Source

Tips for Efficient Credit Card Processing

Here are some payment processing tips every business owner should know...

Know Where Your Money Goes

Finding a good credit card processing rate is all about doing research on credit card fees. In general, interchange rates are usually a good option. These are fixed expenses, and they’re the same for all payment processors.

You should also look into assessment fees. They’re also known as:

• Card brand fees
• Card network fees
• Card association fees
• Network Access and Brand Usage fees

These fees are the costs passed through to credit card brands like Visa and Mastercard. Each brand charges its fees at different prices and they update them quite often. Keeping track of these fees is essential.

Secure Your Transactions

Secure payment processing is both in your and your customers’ best interest. It ensures your business will remain trustworthy. It also minimizes any financial losses that may come from the fines associated with compromised data. For an example of what not to do, look at what happened to Target in 2013. Following a huge data breach, they had to pay an $18 million settlement. However, their actual losses are estimated at somewhere around $291 million.

Use Address Verification Services

The Address Verification System (AVS) is a fraud prevention measure for card-not-present transactions. It compares the billing address provided in the transaction with the address on file with the card issuer. AVS doesn’t detect all types of fraud, but it’s a great way to prevent suspicious transactions. In most cases, you’ll implement AVS through your credit card processor. You’ll also need to keep track of its effectiveness over time.

Optimize Your Processing Speed

At best, slow transaction speeds result in customer annoyance. At worst, they’ll directly affect your sales volume. To ensure your processing speeds are sufficient, you should:

• Choose a reliable payment processor
• Update your POS equipment regularly
• Maintain a stable internet connection

Another way to optimize your processing speed is to focus on reducing friction in your checkout process. Whenever possible, reduce the number of prompts your customers must click through to complete a transaction.

Train Your Staff

With in-person payments, your staff will likely be the weakest point in the transaction process. To avoid human error and help them handle customer data efficiently, it’s important to provide effective training.

Some key areas you should train your staff in include:

• Keeping customer data protected
• Recognizing payment processing risks
• Creating strong passwords for any systems they access

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How to Protect Your Personal Information Online

You likely already know that you should avoid sharing your Social Security number or bank account information online. But not all threats to your data are so clear. Using the web in ways that may feel harmless, such as checking your bank account using free hotel internet on a trip, could inadvertently put you at risk. So could clicking a link in an email that seems legitimate, but is actually a ploy to steal your information. Scammers and hackers are constantly evolving their tactics in hopes of catching their victims off guard. Their goal is to gain access to your sensitive personal information. While you can't eliminate the threat entirely, you can defend yourself by safeguarding your private information and avoiding exposure. Here are seven tips to protect your personal information online.

1. Keep Your Devices Up to Date

When you get a notification that it's time to update the software on your device or one of your apps, it can be tempting to press "delay." But it's a better idea to install updates as soon as they're available.

Device and software updates often include patches that fix security issues. By putting them off, you're leaving yourself open to hackers who take advantage of these vulnerabilities. Fortunately, you can stay defensive by regularly checking for available updates and installing them when prompted to.

2. Browse the Web Safely

Be cautious about connecting your computer or phone to an unsecured, public network. Browsing the web on a public Wi-Fi network in a coffee shop, hotel or airport lounge may not seem risky. Unfortunately, depending on how the network is encrypted, data you transmit through the network could be intercepted by hackers. So, for instance, if you log in to your bank account on an unsecured network, your sensitive financial information could be exposed.

To reduce the threat, avoid logging in to your accounts or transmitting any sensitive information when you're connected to a public network. If you do need to use public Wi-Fi, consider using a virtual private network (VPN) to establish a safe connection and make it more difficult for a hacker to intercept your information.

3. Set Strong Passwords

One of the most important ways to keep your information safe online is to practice good password hygiene. That means setting unique, hard-to-guess passwords for each of your accounts. Here are some tips for setting strong passwords:

• Create passwords that are at least 15 characters long.
• Use a combination of uppercase letters, lowercase letters, numbers and special characters in your passwords. 
• Consider using a passphrase consisting of three or more random words, substituting numbers and symbols throughout for added security.
• Use multifactor authentication whenever it's available to add an additional barrier against hackers aiming to get into your accounts.

4. Consider a Password Manager

Creating strong, hard-to-guess passwords can make it tricky to keep track of your different account credentials. A secure password manager can help you generate and safely organize your passwords.

You might also find that the password manager included on your phone (such as Google Password Manager) is adequate for creating and storing strong passwords. There are also downloadable password managers, such as 1Password (a top choice among cybersecurity experts) and Bitwarden (a free option that offers all the core features you need).

5. Don't Fall for Phishing Attempts

Phishing is a type of social engineering in which a criminal tricks you into sharing your sensitive information. Scammers devise elaborate phishing traps and constantly set new targets—sometimes at random in mass attacks, and other times in highly sophisticated, targeted schemes.

For example, you may receive a phishing email imploring you to click a link right away to track a package that is at risk of being diverted to the wrong location. In reality, clicking the link will prompt you to enter sensitive information, such as your Social Security number or credit card information—or, it could install malware on your device.

The best way to avoid phishing is to become alert and skeptical about the legitimacy of contact you receive from unknown sources. That means double-checking the sender on an email or text message, avoiding clicking unknown links and keeping an eye out for other red flags of phishing attempts.

6. Be Mindful of What You Share Online

Always think carefully before posting something online. Information that may seem innocent enough—like your birth year or high school mascot—could actually be sensitive data that hackers can use to bypass your account security or even impersonate you. For instance, imagine if a friend posts to your page asking you what dates you plan to travel for spring break. If you respond, you've provided any potential bad actors lurking on your page with dates when your home may be more vulnerable to a burglary.

When in doubt, it's always a good idea to simply avoid sharing information online. It's also a good idea to check the privacy settings on your social media accounts to ensure you're only sharing your posts and other activity with those you truly want to see them. Consider setting your profile to private to restrict access to only your friends.

7. Close Old Accounts

If you have old accounts you no longer use, such as old email addresses, social media accounts or customer accounts for various businesses, it's a good practice to delete them. Your old accounts may contain sensitive information, such as credit card numbers. By paring down your old accounts, you're reducing the possible points of entry a hacker could target. You're also cutting down the odds that one of your accounts may be impacted in a data breach. One way to find old accounts is to check the credentials stored in your phone, browser or password manager. Look for any you no longer use and delete them.

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What Is Card Skimming and How Can You Avoid It?

Card skimming is when a physical device installed on a merchant's card reader is used to steal your card's information. You might encounter these skimming devices at gas station pumps, ATMs and point-of-sale (POS) terminals, and they can steal information from benefits, EBT, debit and credit cards. The criminals who use skimming devices can then sell the stolen card details or create counterfeit cards they can use to make purchases or withdrawals. Card skimming has been a problem for years, but the precise methods used have evolved over time. As ATM and POS operators develop new ways to catch or block skimmers, the criminals installing them respond with new techniques and skimming devices.

For example, many cards now have an EMV chip that requires you to insert your card rather than swipe the magnetic strip on the back. As chip cards became more popular, however, criminals developed card "shimming" devices that can copy some of the information from your card's chip.

Regardless of the device's name, the basic premise of card skimming is always the same:

• A skimming device steals your card's information. The skimming device may be placed on top of a card reader or inserted inside the card reader slot. Some of these are very small and well hidden, and you might insert or swipe your card without ever realizing they're inside. When you do, the device steals information from the card, such as your name, card number and card expiration date.
• A camera or keypad overlay steals your PIN. A hidden camera is installed near the keyboard or a thin overlay is placed on top of the keypad. These can record the PIN or ZIP code that you enter.
• Once someone installs a skimming device, it might stay hidden and steal information for a long time. A FICO report from 2022 found that skimming devices stole information from 185 cards on average. And most of the devices went unnoticed for more than a week.
• The criminals who plant skimming devices may periodically return to retrieve the stolen information—sometimes using a wireless connection. They can then sell card numbers online or use them to create a card and withdraw cash from an ATM or make fraudulent purchases.

How to Avoid Card Skimming

You can look for card skimming devices whenever you use your card at an ATM, gas pump or sales terminal. However, you can't rely on detection alone. Sometimes the card skimmers are inside the terminals.

Still, here are a few steps you can take to protect yourself and spot some skimming devices.

• Use the safest payment method available. Tapping your digital wallet or a contactless card can be safer than inserting or swiping your card. If that's not an option, inserting the card's chip is safer than swiping.
• Cover the pad when typing in your PIN. It's not a fool-proof method because a keypad overlay could still record what you type, but covering your hand when you enter your PIN or ZIP code can keep cameras from recording what you type.
• Compare nearby card readers. For example, if you're checking out at a convenience store that has two card readers on the counter, quickly see if the number pads look the same. Even minor differences, such as odd colors or small holes, could indicate the presence of a card skimming device.
• Manipulate the edge of the device. You could try pulling on the card reader or keypad to see if there's a skimming device that moves or comes off.
• Check the security seals at gas pumps. Some gas stations put a special security seal tape on their pumps. You shouldn't use your card if the tape is broken or says void.

In general, using a credit card might be safer than a debit card. Although most credit and debit cards offer zero liability protections if your card's information is stolen, your credit card isn't directly tied to your bank account. As a result, you won't have to deal with the potential hassle of getting your money back if thieves drain your bank account. You can also try adding alerts to your credit and debit cards—such as an email, text or app notification—every time there's a new transaction. The alerts can help you act quickly if someone uses your card's info to make fraudulent purchases. Source

Consolidating debts: Pros and cons to keep in mind

Today, many people have multiple debts that can become difficult to manage. In addition, consumers may be faced with high interest rates that add to their overall debt total, which could mean paying much more than their actual loan amount. After years of making payments to lenders, many decide to consolidate their debt into one loan versus keeping up with payments on several loans or credit cards. Being debt free may also be a goal but getting there starts with a plan that’s suited for your debt situation. When deciding on a plan, consider these pros and cons to help determine your options. 

But first, let’s review what consolidating debt looks like...

Start by getting a basic understanding of what debt consolidation means and whether it can help you. When coming up with a plan, it can be hard to figure out where to start. However, if you lay out all your debts, payments and interest on current cards and loans, and you notice some of the following rings true, that’s the first big first step toward understanding whether debt consolidation is right for you. 

Consider debt consolidation if:

• You have multiple high interest rate loans (including credit cards, personal loans, school loans, etc.)
• Your credit score has improved since applying for your original loans.
• Your debt is 40% less than your gross income.
• You want to make just one monthly payment toward your debt.

 Debt consolidation can be a good idea for borrowers who fall within these categories. But it’s also important to note that moving forward with consolidating only helps if you take steps to avoid adding too much new debt, and it’s always important to avoid taking on more debt than you can afford to repay. If habits like overspending pile up, it’s time to move forward with a plan to address those habits before jumping into consolidating debts.

Let’s take a look at some pros and cons of debt consolidation...

 

The Pros;

Consolidating debts can have its benefits. Here are a few advantages to help you plan.

• Keep organized: Tidying up your finances by combining outstanding debts into a few payments (or even one payment) can help you stay organized. Keeping debts organized may also help you stay on track with your monthly payments and any interest hikes that could hit your loans that you may not notice if you’re keeping track of too many accounts. If your goal is to become debt free, keeping fewer accounts organized can help you more easily see when your debt will be paid off.

• Track fewer interest rates or lower rates: By combining debt of each loan that carries its own interest rate, it could be easier to have just one or very few interest rates to keep track of. Start by understanding your credit score and its health before looking for a loan or credit card with less interest. It’s also a good idea to talk with your banker or financial advisor for guidance before jumping into a situation that could provide a lower interest rate. 

• Help improve your credit score: Though applying for a new loan or credit card could temporarily impact your credit score, the longer-term benefits of having more manageable debt payments can lead to an improved score over time. It’s important to look at reducing your credit utilization (the percentage of your total available credit that you’re using). For instance, if you have a credit limit of $10,000 on a card and your balance is at $5,000, your credit utilization ratio is 50%. Some experts recommend keeping your credit utilization under 30%. By consolidating this type of debt into a lower interest rate loan or paying down your balance to hit that 30% mark, this can potentially help boost your credit score.

The Cons;

A debt consolidation loan or credit card balance transfer may be a good way to organize debt payoff, but there are some disadvantages to keep in mind...

• Nothing is guaranteed: Consolidating debts does not guarantee you’ll get out of debt. Before consolidating debts, make sure your spending habits are in check, you’re on top of monthly payments and your credit score is in good shape. If your credit score could use a little work, learn about some ways to build and maintain your credit score.

• Interest rates are higher: Though debt consolidating could lower your interest rate depending on your situation and credit health, it could also raise the interest rate. If your credit score isn’t high enough to access competitive rates, you may be stuck with a rate that’s higher than your current debts. That’s why it’s best to consult with your banker or financial advisor about an approach for your situation.

• May encourage overspending: Consolidating debts can organize and streamline your payments, but it doesn’t address the habits that might’ve led you to accumulate debt. And sometimes seeing available credit on a credit card may give the illusion that you have money to spend. Those tempting purchases may look more enticing if you clearly see you have available credit, but remember to be mindful about each purchase and be careful not to spend more than what you can afford to repay.

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Happy 4th of July!

 

 

Happy 4th of July from Bankcard Processors, LLC! 

We hope you have a safe holiday weekend!

850) 228-5571

jphaire@bankcardprocessors.biz

Importance for Processing Credit Cards Effectively

In today's digital age, businesses must adapt to a variety of payment methods, with credit card processing being one of the most essential. Understanding the intricacies of credit card transactions can greatly enhance your operational efficiency and customer satisfaction.

Efficient credit card processing is crucial for maintaining a smooth transaction flow. It impacts customer experience, security, and ultimately, your business’s bottom line. Here are a few reasons why efficient credit card processing is pivotal:

• Improved Customer Satisfaction-- Quick and seamless transactions lead to happier customers, increasing the likelihood of repeat business.
• Reduced Abandonment Rates-- Streamlined checkout processes minimize the chances of cart abandonment due to lengthy or complicated payment experiences.
• Enhanced Security-- Efficient processing systems are often more secure, protecting both your business and customers from fraud.
• Global Reach-- Effective credit card processing opens doors for international customers, allowing you to expand your clientele.

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