Be Aware of Credit Card Cancellation

If you want to simplify your financial life, cancelling unused credit cards seems a good way to start. Why have all these accounts open if you are not using them? You will have fewer credit cards tempting you to spend money and therefore fewer credit bills to pay.

However, be aware of the fact that closing your account may actually lower your credit score. Credit bureaus consider the ratio between the balances on your credit cards and your total available credit. When you cancel a credit card, you have less available credit, but your debt remains the same.

Thus the percentage of debt/available credit will increase. It may seem that you are close to being overextended. If you have a debt, try to keep it less than 30% of your available credit.

Credit card cancellation won't allow you to benefit from a long credit history. Keep in mind that 15% of your FICO score is determined by the length of your credit history.

So, a card-cancelling strategy is not for all. If you are seeking for a car or a mortgage loan, you should better wait until you qualify for the loan before closing your unused accounts.

On the other hand, cancelling credit cards can be very beneficial. First of all, it is easier to manage fewer credit cards. When you have many cards in your wallet, it's difficult to keep in mind which plastic you use, which plastic you don't use, how much money are on this credit card and what is your credit line on that credit card.

The fewer cards you have, the easier it is to prevent excessive spending. It is more convenient to track expenses and control your total debt level when it is on one or two credit cards.

If you just throw away or cut up your unused credit cards, it doesn't mean that they will stop working. You can easily reorder them when you need. If you know that an open credit line will be tempting you to spend money - go ahead and close the account.

Moreover, the unused cards that you have thrown away or put aside can be stolen by identity thieves. I know some people who didn't bother about credit card protection. And it was an unpleasant surprise for them to get bills for the credit cards they had forgotten about.

Fewer cards are your way to peace of mind. Yes, it may lower your credit score a bit. But if cancelling unused credit cards keeps you from accumulating more debt, feel free to do this. You can build up your credit score paying your credit bills on time. Keep 2 or 3 of your most beneficial plastics with lowest APR.

Closing an account correctly takes time, patience and organization. Keep in mind to check your credit report after you have closed the account. There should be written that the account was "closed at customer's request". If it indicates that it was "closed by creditor", you have to write a letter to the lenders. It's your responsibility to make sure that your credit report is correct.

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