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Canceling Credit Cards: 5 Questions to Ask Before Closing Accounts

Not sure if you should cancel a credit card? Laura answers a listener question and gives you five questions to ask that will help you know whether closing a credit card will barely affect your credit scores or end up hurting your finances.

 
 
By
Laura Adams, MBA
Episode #457

Question #3: How many credit cards do I have?

If you have credit cards that number in the double digits, you can probably close one or 2 without damaging your credit. However, it’s a good idea to space out the cancellations over time, such as one every 6 months.

But if you have just one or two cards, closing accounts will have a bigger impact by causing your utilization rate to significantly increase. Also, having a mix of credit types—like loans and credit cards—is a factor in how credit scores are calculated.

So don’t cancel your only credit card. I recommend that you always have at least one credit card in good standing.

Question #4: What’s the cost of my credit card?

Some card issuers charge an annual fee—especially when the accounts come with valuable rewards, such as cash back, airline miles, or points for merchandise. Analyze the rewards you’ll get based on how much you plan to use the card.

If you can’t afford the annual fee or won’t use a rewards card, common sense should be the deciding factor, not your credit score.

Question #5: Will I need credit in the near future?

If you’re planning to finance a big purchase, such as a home or vehicle, in the next 3 to 6 months, I don’t recommend closing any credit cards. If your utilization rate increases and your credit scores take a dive during the application process, you may be turned down or offered a too-high interest rate.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a trusted and frequent source for the national media. Her book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show. 

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