It is always wise to maintain more than one credit card account. However, if you already have too many cards in your wallet, you might want to cut down any existing credit card that you’ve stopped using recently.
There are few reasons behind this decision that you must be aware of:
- It’ll help you to keep track on all the active credit cards. It’ll also clean your credit report.
- You’ll be qualified to get a loan as your revolving debt amount will be lowered.
- It’ll help you to avoid unnecessary payments. Without using the card at all, it’s a waste of money to pay yearly charges and fees.
- It’ll provide protection regarding any identity theft. Con artists may target your unused cards and you’ll end up paying a lot towards things you didn’t buy or use.
To help you understand what you should and should not do when closing old credit card accounts, here are a few tips to keep in mind.
Do’s...
1. Close unused high interest cards - If your card has a high interest rate or excessive fees, and your credit card company isn't willing to reduce the rates or waive fees, you may surely close the account, especially if you aren’t using the card.
2. Pay balances on your active accounts - You can request your creditor to close new charges in your existing accounts. In the meantime, you can pay down the balance at every billing cycle. It is a good option for heavy credit card users to stop further spending as well as lowering their account balances.
3. Try to retain some accounts - You can do this to keep your credit score high. The more you actively and responsibly use your credit, the more chances you’ll have to get approved by your future creditors.
4. Don't forget to check your credit reports - Check for updates and errors after you close accounts. Usually, creditors and credit bureaus will take 30 to 60 days for updating your records. The details may stay on your credit report for 7 or more years.
5. Dispose of canceled credit cards - It is crucial to dispose off the closed credit cards. You must cut the cards in half so that no one can misuse your credit card and reopen the closed account.
6. Pick one card for general use and make regular payments - You can select one low-interest card and use it for day to day spending. You can reserve your other cards for any emergency or specific cause. By paying off that single card on time every month, you won't have to think of carrying a huge balance. On the other hand, urgent expenses can be handled with your higher-interest cards. However, don’t forget to pay them off on time.
Don't’s...
1. Closing the oldest credit account - Your credit history is one of the 5 prime factors of your credit score. So, if you close your old credit card accounts, your credit history will become shorter and it may damage your credit score. Therefore, think before closing your credit accounts.
Try to have more than 7.5 years of open accounts to have a good score.
2. Just throwing off unused old cards - Don’t just throw away your unused cards; that’ll be foolish! The right way to close one of your unused credit accounts is to send a certified letter to the creditor. Normally, within 10 days you’ll receive the closing confirmation letter in your hand.
3. Canceling several credit accounts at a time - If you want to cancel more than one credit account, then try to keep a time gap between closing two accounts. If you don’t, it may increase negative suspicion from existing creditors.
4. Over-consolidate balances onto one card - You must keep your credit balances under 30% of your available credit limits if possible. If anyhow you cross the limit, it may hamper your credit score.