Wait Before You Cancel Your Credit Cards

Canceling a credit card is a serious move. You might have moved on to a new credit card that is better than your old one and think, “Well, I’ll just cancel the old card and be done with it.” However, it’s not that simple. Here’s what you should know about canceling credit cards.

Why Canceling Cards is a Bad Option

Most of the time, canceling a credit card is not a good idea. The reason for that is that keeping a card open can help your credit score in many ways. Here are just a few factors that an open card boosts:

• Credit utilization. This is the total balance of your accounts compared to the total available credit limit. You want your ratio to be below 30 percent, so keeping a card open helps your overall limit.
• Payment history. Paying your bills on time, every time, is a huge factor in your credit score. If you keep your card open by making small charges and immediately paying them off, your history gets a nice boost.
• Credit history. Keeping that card open lengthens your credit history.
• Credit mix. Another way to help your score is to have a bunch of different credit accounts. If you cancel your card, that reduces your credit variety.

Why Canceling a Credit Card is a Good Option

Now that you know all the reasons to keep a credit card account open, let’s look at the most common scenario for closing a card.

• Fees. You might have a card that you rarely use that has a large annual fee. That yearly charge seemingly makes keeping the card open not worth it. One way around this is to switch to a card with no annual fee. That way, you keep the account open but aren’t saddled by the yearly charge.
• Personal preference. You know yourself and your behaviors. If you feel like having a credit card is a trigger for overspending, then maybe you should close the card to prevent that behavior. Or maybe you’re taking a principled stance on debt and credit cards, then by all means, cancel your cards to be true to yourself.

Do One Thing: Keep your credit cards open even if you rarely use them. In most cases, doing so is well worth the credit score boost.