Credit Cards

2 Times Closing a Credit Card Might Make Sense

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Don’t leave your old cards open unless it benefits you.

Key points

  • Closing credit cards can sometimes hurt your credit score, so it’s usually best to keep old cards open.
  • If you’re worried about overspending or want a free card, it might be time to cancel your current card.

If you have a credit card that you no longer use, you may be tempted to close the account. However, before you do, you should keep in mind that closing old credit card accounts isn’t always in your best interest.

When you close an old account, you could end up lowering your credit score. This could happen if closing the account lowers the average age of your account history, as having a longer credit history helps you get a higher score. Losing positive card payment history can also hurt your score, as your payment history plays the biggest role in your credit score.

If you close an old account, you’ll also end up using more of the credit you have available, since you’ll lose that line of credit. This could be a problem, as used credit versus available credit is an important factor, called a credit utilization ratio, that helps determine your credit score.

Because of these drawbacks, it’s generally best to keep old accounts open, even if you no longer need the card. However, there are two situations where you may want to close your account despite the potential damage to your credit score. This is what they are.

1. If you are concerned about your consumption habits

If you find yourself spending more than you can pay on time each month, having an open card might be too much of a temptation for you. After all, the more credit you have available to you, the greater the potential that you could end up with a large amount of high-interest debt.

Ideally, you’ll be able to avoid using the card even if you don’t close it. You can cut up the card and still keep it open, as long as the card issuer doesn’t close it due to inactivity. Or you can use the card to make a small, predictable purchase, like paying just for a streaming service. And you could automate that payment so the card stays open and maintains your credit history, but doesn’t put you at risk of overspending.

But if you think you’ll overspend if the card stays open, it’s better to close the account than risk a situation where you charge too much that you can’t pay.

2. If the card is charging you a high annual fee

The second big situation where it might make sense to close a card is if you’re paying a high annual fee and not earning rewards or taking advantage of cardholder benefits.

Instead of just accepting this expensive monthly cost year after year, it’s better to just close the account, especially if you’re not going to get a big loan anytime soon, like a mortgage, and can afford to take the temporary hit to your score.

In this situation, it’s usually worth asking the card issuer if you can downgrade the account before closing it. If you can switch to a credit card with no annual fee on the issuer’s lineup, you may be able to get rid of the fee and avoid the impact on your credit score. But if that’s not possible, closing the card might be smart.

The important thing is to determine if the pros of closing the card outweigh the cons. If they do, closing your account might be the best decision you can make.

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