Canceling That Card? Not So Fast!

Many Americans end up with  more credit cards than we have room for in our wallets.  Recent studies show that the average American has around 8 credit cards at any given time. When spending habits get out of control the first instinct for many of us is to cancel some of your cards. Before you get out the scissors and start calling 800 numbers lets look into how canceling credit cards can affect your FICO credit score so you can thin out your wallet without damaging all the hard work you have done.

Closing accounts can actually hurt your credit score if you aren’t careful, here’s why: Lenders look at the percentage of your revolving credit that you use on a regular basis.  Generally lenders don’t like to see your balance  higher than 30% of your total revolving credit. (EX/ If you have 2 credit cards with 5,000$ limits each or 10,000$ total revolving credit then lenders would like to see your average balance less than 3,000$) When you cancel a credit card it makes the percentage of revolving credit you use higher.

What can you do then? The best bet is to leave the credit line open and see if they can wave any yearly fees. You don’t have to use the card for it to be positive on your credit score.

One case where you may want to cancel some cards is when you have more than 7 credit cards. Having too many revolving credit accounts can impact your credit score negatively too. When you start looking at your credit lines and picking which ones to cancel make sure you take these things into consideration.

• History is 15% of your total credit score. Don’t cancel card’s you have had for a long time and show good history on. A major 15% of your score is determined just by how long you have been borrowing, so favor the oldest cards even if there may have been some blemishes on the history. Canceling them doesn’t make blemishes go away, continuing to use them will help any little issues disappear fastest so keep the good ones around.

• Keep the cards that reward you. If you have a card that you earn rewards, flights, or points on that you enjoy then keep using it. Also ask if they can waive any fees or lower your interest rate if you have had the card for a while.

• Keep your own Identity. If you are married don’t give up your identity entirely, just having your name on a spouses card will do nothing for your credit score and may even impact it negatively. Keep at least one credit line open just in your name to show a positive long standing history of your on time payments.
• Lose the lows and the highs. Take a good look at your card statements that show your interest rate and credit limit. Try to get rid of the ones with the lowest credit limits (so they don’t lower the percentage of total revolving credit usage too much). Also look at getting rid of cards that have ridiculously high interest rates, or rates that keep changing.
• Consider the intangibles. Take into account some of the things that aren’t typically black and white. Have you had a good experience with this card? Is their customer service stand out? Do they help you when you need it? Do real people answer when you call?  These things are good to take into consideration when deciding which cards to let go.

When you have chosen which to let go, do it the right way. Call the number on the back of the card and speak with a live representative and request to cancel your credit line. It can show in your favor to have the card canceled “at the cardholder’s request”.

You may want to close 4 or 5 cards at once. Don’t! If you do decide that you don’t need them anymore you don’t have to cancel them. Just put them somewhere safe and stop using them. Lender’s don’t like to see lot’s of credit lines closed quickly. This way your overall credit limit isn’t crushed and your FICO score remains intact. If you do want to cancel more than a few cards, I suggest doing it over a few month span and using the guidelines above to make smart decisions on which to keep and which ones to let go.

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