Cancelling Credit Cards: When You Should and Shouldn’t Do It

People seeking credit counseling advice are often curious about cancelling credit cards. We’ve written frequently about how closing accounts isn’t necessarily good for your credit score, but once an account is closed it can’t be used to accumulate more debt, making credit counseling that much easier to achieve.

When cancelling credit cards is a good idea

Whether cancelling credit cards is or isn’t a good idea varies from person to person, and from account to account. Here are some cases where closing an account can be a good idea:

• When your creditor changes the terms of your credit card agreement, cancelling the card is a good move. Because the laws surrounding credit card lending have never required strict contract enforcement with credit card accounts, creditors are free to change your terms in ways detrimental to you. Closing the account is usually the only move you have, and if more people closed accounts in response to changes in the original credit card agreement, the creditors might think twice before doing it.
• If you don’t need your credit score any time soon, you can cancel accounts and your score should rebound by the time you need it again. If you own a home and don’t need new credit, you should be safe to close some unwanted accounts. If you are thinking of moving soon, applying for a loan or seeking a new job, don’t do anything that might damage your credit score in the short term.
• If you sign up for a debt management plan (from credit.org, naturally), your credit should not be your top priority. Eliminating your debt should be. Closing accounts is an important part of the DMP process and will help ensure your success.

When cancelling credit cards is a bad idea

And on the flip side, there are times when cancelling credit cards is a bad idea:

• Your oldest credit card account should stay open, because it helps the credit bureaus calculate the overall length of your credit history. Closing that account would have a disproportionately large negative impact on your credit score.
• Don’t close any cards that have a balance, if you can help it. If you need to close an account with a balance, talk to credit.org about a debt management plan, or transfer the balance to another card with better terms before closing the account.
• Keep some credit available to you, if possible. That means you shouldn’t close your last credit card account unless you’re on a DMP. And don’t close accounts and leave yourself with no available credit.

Because factors like your total credit available and total credit used have an important impact on your credit score, closing accounts can have a larger effect than one might think. Be careful when considering which accounts to close and which to leave open.

If you need credit counseling, call us any time for a free, confidential counseling session. Our counselors are fully certified and standing by to help you at no charge.

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