Should You Cancel Unused Credit Cards?

Closing unused and old credit card accounts may help you stay away from fees that aren’t necessary and guard yourself against identity theft. Yet, it can also make your credit score decrease if you aren’t careful. Because of this, you must be cautious when you cancel unused credit cards, as there are both pros and cons of doing so.

Why Unused Accounts Should Be Closed

You should definitely take into consideration closing your idle and unused credit accounts, as these accounts can charge you unnecessary annual fees. Additionally, having too many credit card accounts open at once can leave you vulnerable to identity theft. When deciding which credit cards to shut down you should first pick the accounts that have the highest interest rates and that have annual fees.

Look At Your Credit Report

When deciding whether or not to close a credit card account, it is beneficial to check your credit report in order to see what your accounts’ statuses are. Be on the look out for high balances and late payments, as well as any signs of identity theft. Checking your credit report can also save you time by giving you the necessary contact information for all of your creditors.

Active Balance Accounts

If you are not closing a certain credit card account due to the fact that it has an active balance then you should be aware that you could in fact cancel a credit card that has a balance.  You may ask your creditor to shut down the account to any new charges while still paying down the credit card balance every month. This can be a good way for those credit card users who rely heavily on their cards to prevent any new spending while still working to reduce their current balances.

The Magic Number

You should keep a certain number of credit accounts open in order to keep your debt and credit score balances in healthy condition. This magic number is in between four to six accounts. Using credit cards responsibly as well as actively is viewed in a positive light by creditors.

Designate Your Cards

It is a good idea to designate one of your credit cards for everyday use, and try to pay down the balance in full every month. You should then reserve your other credit cards for emergencies in order to not be tempted to overspend.

Don’t Close Your Oldest Accounts

You should avoid closing your oldest account found on your credit report. This is due to the fact that your credit history will then appear shorter, which could negatively impact your credit score.

Go Through the Necessary Process

Don’t just throw away the credit cards you don’t want to use, and expect those accounts to simply close on their own. You must go through the due process of closing the accounts that you do not want. Typically the safest way to do this is to send in a certified letter to your credit card company. You should then receive a confirmation letter within the following ten days that your credit card has been closed.

Don’t Over-Consolidate Your Balance

You should avoid over-consolidating your credit balances all onto one card. Keep in mind that if your credit balance rises to more than 35% above your available limit, you will likely see your credit score drop.

Be Patient

You must typically wait between 30 to 60 days for your creditor to report that you account has in fact been closed and for the credit agencies to update all of your records. Know that the accounts that you close will remain on your credit report for at lease seven more years, however they’ll be reported as closed.

Finances - 20 Aug, 2014 - No Comments