2 times closing a credit card might make sense


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Don’t leave your old cards open – unless it benefits you.

Key points

  • Closing credit cards can sometimes hurt your credit score, so it’s usually best to keep old cards open.
  • If you’re worried about spending too much or want a no-fee card, it might be time to close your current card.

If you have a credit card that you no longer use, you might be tempted to close the account. Before you do, however, you should know that closing old credit card accounts isn’t always in your best interest.

When you close an old account, you could end up lowering your credit score. This can happen if closing the account lowers the average age of your account history, because a longer credit history helps you get a higher score. Losing the card’s positive payment history can also hurt your score because your payment history plays the biggest role in your credit rating.

If you close an old account, you’ll also use up more of the credit you have because you’ll lose that line of credit. That could be a problem, because used credit versus available credit is an important factor — called credit utilization ratio — that helps determine your credit score.

Because of these drawbacks, it’s usually best to keep old accounts open even if you no longer need the card. However, there are two situations where you may want to close your account despite the potential damage to your credit score. Here is what they are.

1. If you’re worried about your drinking habits

If you find yourself spending more than you can afford to repay on time each month, having an open card might be too tempting for you. After all, the more credit you have at your disposal, the more likely you are to end up with a lot of high-interest debt.

Ideally, you’ll be able to avoid using the card even if you don’t close it. You can cut the card and keep it open – as long as the card issuer does not close it due to inactivity. Or you can use the card to make a predictable small purchase, like paying just for a streaming service. And you can automate that payment so the card stays open and maintains your credit report, but doesn’t expose you to overspending.

But if you think you’ll overspend if the card stays open, you’re better off closing the account than risking a situation where you charge a lot that you can’t pay back.

2. If the card charges you a high annual fee

The second big situation where closing a card might make sense is if you’re paying a high annual fee and not earning rewards or enjoying any cardholder benefits.

Rather than accepting this onerous monthly cost year after year, you might be better off just closing the account, especially if you’re not going to take out a big loan anytime soon, like a mortgage, and can afford to take the temporary hit to your score.

In this situation, it’s usually worth asking the card issuer if you can downgrade the account first before closing it. If you can upgrade to a no-annual-fee credit card in the issuer’s lineup, you may be able to both get rid of the fees and avoid having your credit score hit. But if that’s not possible, then closing the map might be smart.

The important thing is to determine whether the advantages of closing the card outweigh the disadvantages. If so, closing your account might be the best decision you can make.

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