Top Dos and Don’ts for Closing Credit Cards

If you’re at the point where you think it’s best to close out one or more of your credit cards: STOP. It’s time to do a little bit of thinking about the outstanding possibilities and the ramifications of closing your accounts before you do so.

Here are some top dos and don’ts for closing credit cards.

Do Understand How It Will Affect Your Credit

You might be under the impression that closing your credit card can only mean good news for your credit score. In fact, the opposite is true.

If you close a credit card, you’re reducing the amount of available debt you have. As a result, you’re going to limit your credit card utilization rate. That rate is one of the most important factors that gets plugged into the formula used to calculate your credit score. That means you could see a noticeable drop in your credit score if you decide to cancel the card.

Also, while you’re going through your “credit cards or cash” decision, consider that the average age of accounts also affects your credit score. So, if the card you’re thinking about cancelling is one of your older cards, you’re going to lower your average age of accounts and possibly lower your score.

Do Negotiate With Your Credit Card Company

If you’re thinking about cancelling a card because it has a high APR, consider calling the credit card company’s customer service department and asking for a lower rate. Since it usually costs more for a credit card company to find a new customer than to keep an existing one, you might find that the company is receptive to dropping your rate a bit so that you both win.

Don’t Think Your Card Is Cancelled When You Cut It in Half

If you’re under the impression that you can cancel a credit card by just taking out a pair of scissors and cutting it in half, you’re wrong. You’ll have to pick up the phone and call the credit card company’s customer service department to formally cancel the card. You might be subject to a legal spiel when you go through that process, so be prepared to stay on the phone for a few minutes.

Don’t Close All Your Cards

It’s best to avoid closing all your cards at one time. Even credit cards with no credit have some value, after all.

For starters, you might lower your credit score significantly if you cancel all your cards at once. That’s because you’ll be reducing your available credit by quite a bit.

Also, you might need one or more of those cards for an upcoming emergency expense. If you dump all your cards at one time, and you don’t have enough cash in the bank to pay for a medical emergency or an important maintenance issue, you could end up in a lot of trouble.

It’s tempting to close credit cards that you’re no longer using. Before you do so, though, you should carefully evaluate the consequences and look for reasons to keep those cards open.