Should I close my unused credit card accounts?

The average American carries, well, let’s just say multiple credit cards. (The number ranges between five and ten, so it might be best to say multiple.) Having multiple credit cards means multiple balances, multiple interest rates, and the potential for multiple fees. This could also result in higher debt and a lower credit score. If you’re at this point, you might wish to consider getting rid of some of your accounts.

Cancelling credit cards can be a tricky business, especially when considering how you’ve used them, how many late payments you’ve made, and the rewards you may be getting by using them. Remember that, even though you’ve closed the account, the card’s history is not magically erased. It takes at least seven years for a closed account to be removed from your credit report, so you (and your creditors) will still see any negative items you had on the card.

The cards you do not want to cancel are your oldest line of credit and cards with possible rewards. If you have a credit card that you haven’t used in about five years, don’t cancel it! Cancelling your oldest account could lower your credit score. Lenders like seeing a long history because they can see how responsible you have been in dealing with credit. In fact, the length of your history factors in about 15% of your overall credit score, so keep your oldest credit card, and make sure to keep it current. Also, if you have a card that offers rewards, such as frequent flyer miles or rebates, and you are going to use the rewards, do not cancel it.

If you need a high credit score in the near future, do not cancel your cards. Starting a business or obtaining a mortgage requires a high score, and it helps to have a strong history with many different lines of credit. Types of credit accounts for 10% of your credit score, so if you close multiple accounts at once, your score might actually drop.

If you are going to close an account, close one that has a high interest rate. Just make sure that the card’s balance is low. If the card’s balance is 50% of its credit limit, you need to pay it off first before cancelling the card. Closing an account with a high balance is an absolute no-no. It’s comparable to waving the white flag, signaling that you can’t handle credit. The optimal ratio of your balance to credit limit is of course 0%, but this may be impossible for you if the card’s interest rate is over 20%. Get the card’s balance below 25% of the credit limit before cancelling the account.

And just because you’ve cut up the card and thrown it in the trash (or recycle, since it’s plastic), the account has not been cancelled. Call the 800 number on your card’s billing statement and ask to have the account cancelled “at the cardholder’s request.”

David Pilley

David Pilley

David Pilley is a May 2010 graduate of the University of North Carolina at Chapel Hill, with a B.A. in communication studies and a creative writing minor. He is a native of Raleigh, North Carolina.

He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.

Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.

In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
David Pilley

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