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When Should I Cancel A Credit Card?

 | Jul 15,2007


If you have some credit cards you never use, should you cancel them? Does it help or hurt your credit to keep cards you don't use. The answer is not a simple black and white issue and actually depends on your situation.

Why Not to Cancel

Keeping your credit cards you don't use can help you in two ways. First, the credit is available to you if you ever have an emergency in which you need to have financial resources. Second, one of the main components of your credit score is made up of the amount of credit you have versus the amount of credit you use on a monthly basis. Your credit score is hurt if you use more than roughly 40 percent of your available credit. So keeping those cards can boost the amount of credit you have available and are not using.

Why to Cancel

Your credit score is not the same as a mortgage score. A mortgage score is like a credit score in that it examines your credit history quite thoroughly. However, it looks at potential unused credit as a problem. You might go out, incur more debt with these cards and then not be able to pay your mortgage they fear.

Another reason to cancel might be just to pull in the financial reigns. You might want to cancel cards you're trying to stick to a budget and want to eliminate the temptation of credit.

How to Cancel

If you are preparing for a mortgage, then it can help you to close accounts of credit cards you're not using. The way to do this is to call your credit card company and request that the card be canceled .

Be forewarned. Telephone reps for the credit cards have scripts in front of them prompting them to offer you better terms (lower interest rate, no annual fee) in exchange for keeping your account open. If the offer is really good, then perhaps you're better off keeping that card and canceling another. Either way, expect the credit card company to fight to keep you as a customer.

You want to make sure of two things. Do not close an account that you are still paying off. And make sure the account you close is reported to the credit bureaus as "closed by customer," not "closed by creditor."

In addition to your phone call, you can back yourself up by sending a registered letter to the credit card company stating your name, that you want the account closed, your address and your account number.

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