When to Cancel a Credit Card

Credit & Debt, Living & Spending
on January 31, 2013

For the most part, closing a credit card adversely impacts your credit score. However, there are exceptions to that rule. If you decide you want to close your card, when is the best time to do so?

Cancel  When You Don’t Need Your Credit Score

If you aren’t planning on buying a new house or applying for any other type of loan in the near future, you should take the opportunity to close out any old credit cards that you don’t want or need. This is because you will have time to increase your credit score again by paying your other bills on time or simply by reducing the amount of debt that you will now be carrying.

Close One Card While Opening Another One

When you close a credit card, you lose that amount of available credit listed on your credit report. However, if you open a new card at the same time, you may be able to get a card with lower interest while possibly increasing the amount of available credit you now have. For example, if you close a credit card with a balance of $500, consider opening a new card with a balance of $1,000.

Only Close Cards That Have Been Recently Opened

If your oldest credit card is ten years old, lenders will see that you have a ten year credit history. However, if you close that account, lenders will see that you have a credit history that is only as long as your next oldest account. Therefore, you should only cancel credit cards that have been opened in the last year or so. Never cancel an old card simply because you have eliminated the balance on it. Instead, destroy the credit card to make sure that you don’t use it again.

Closing a credit card can be a good idea in certain circumstances. However, you should only close a credit card if it is being replaced by a card with a higher balance, it is not your oldest credit account and only do so at a time when you can absorb the credit hit.

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