When focusing on finances and creating a budget, it may seem like a good idea to cancel credit cards you aren’t using, but there are some points to consider. How do you know whether canceling or keeping is a good idea?
Closing accounts can significantly impact the factors that determine your credit score, and this effect may not be temporary. However, canceling cards also erases the credit history associated with them, which can be detrimental to your credit score. While it may seem counterintuitive to hold on to credit cards when trying to eliminate debt, canceling isn’t the wisest move in most cases. Consider the following:
- Credit Utilization: This term simply refers to the amount of your available credit that you’re using. Keeping a card open increases your overall limit, a positive factor for your credit score.
- Payment History: Paying your bills on time is important for your credit score. If you keep that card open and use it for small stuff, pay it off immediately. It looks great on your record.
- Credit History: The longer your credit accounts open, the better. So, hanging onto that card helps build up your credit history.
- Credit Mix: Different credit accounts can boost your score. If you cancel your card, you’re losing out on that variety.
Do you have a card with an annual fee that is making you grimace? That’s a common reason for wanting to cancel. But hold up! It might be worth keeping if you’re still getting benefits from the card that outweigh the fee. If you want to keep the account but ditch the fee, you could try downgrading to a different card with no annual fee. Just give your card issuer a call and see what they can do.
Bottom line: Keep those credit cards open, even if you don’t use them much. It’s usually worth it for the boost it gives your credit score.
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