Are you wondering: should I have closed my credit cards? By closing your credit cards, you may negatively affect your credit score. Let’s discuss more in this post I wrote after I closed my credit cards.
I did some spring cleaning the other day and found two credit cards in my drawer which I totally forgot I had!
One was a Home Depot credit card I got three years ago at the check out counter because I could save 15% off my $3,000 purchase immediately.
The other card was a Banana Republic credit card that I applied for also three years ago to save 10% off my $1,300 purchase of a couple new suits, shirts, and shoes. Both cards have zero balances, and neither have been used since the initial purchases!
My first reaction was I should have closed my credit cards three years ago. It’s not worth having credit cards lying around that aren’t being used. I don’t want to risk someone getting a hold of them and going crazy buying Brazilian rosewood floors at Home Depot or alligator shoes at Banana Republic or something.
In essence, I wanted peace of mind and so, I closed both credit cards. To my surprise, I didn’t get a hard sell to leave them open. I pressed several buttons on my cell phone and both cards are now shutdown. Ahhh, so nice to not have to worry and have less potential holes to leak wealth. I felt good that I closed my credit cards.
Should I Have Closed My Credit Cards?
It was only after I closed my credit cards that I began to wonder what effect it would have on my credit score and other negative repercussions. You may have some of these same thoughts too so here are some some tips before you close them:
1) If the card is your only credit card, you probably don’t want to cancel it. To build a good credit score, you need to prove you can handle credit! Hence, even if you never use your credit card and hate credit, you should have one credit card open and never close it.
2) If the card has a long credit history, think twice before closing it. Your credit score is also based on your credit history i.e. a 20 year history of paying off your account is worth more than a 2 year history. If the card is your oldest card, keep it.
3) If the card has a large credit line compared to your overall credit, think thrice about closing it. If your overall access to credit is $15,000 between 3 cards, and one card has $10,000 of credit, you should probably think about closing the other two cards before your main credit line card.
4) If your card’s rate is lower than the rest, keep it. The two credit cards I closed probably had a rate of 20%+ because they are merchant credit cards. Nobody should be stupid enough to use those cards and NOT pay them off in the first billing cycle.
5) If your card is tied to multiple payment accounts, you may want to reconsider. Imagine if a card is tied to your Amazon account, fitness club account, car insurance account, and home alarm bill. What a pain in the butt to close and re-fill out all the forms.
Credit Cards Aren’t For Everyone
IMPORTANT: If you have addictive tendencies such as gambling, smoking, over eating, cheating and so forth, you probably don’t want to have more than one credit card, or even one credit card, period.
It’s important to know thyself and figure out whether you can handle paying for things on credit and paying off the balance every month. Work on kicking your addictive habits first, before using a credit card.
Credit cards aren’t for everyone. If you’re financially responsible however, check out this post on the ideal number of credit cards.
Open Up Store Credit Cards To Save Money
If I spend more than $1,500 and there is a 10% savings at checkout I probably will spend 5 minutes to fill out a form for a store credit card. Call me a sucker for saving money. But, that’s what I like to do on things I plan on purchasing anyway.
I don’t go shopping much at all, but when I do, I’m willing to do a lot to reduce my bill. Furthermore, I always pay off the bill in the first billing cycle, or before the 0% interest rate ends. To do otherwise is just illogical. By the way, if you like to shop, these are the best credit cards for shopping online.
I have worried about how opening up new lines of credit affects my credit score, but I’ve stopped worrying. First of all, the credit lines are so small compared to my overall credit that it doesn’t make a difference.
I always pay off the bill in full, so it doesn’t negatively affect my score. And finally, there’s no point in overly worrying about your credit score if you consistently pay your bills on time.
Looking for an awesome travel rewards credit card? Check out the Chase Sapphire Preferred Card and other great rewards credit cards. I use my Chase credit card for all my business and travel spending.
It gives mepoints for more free travel, insurance in case my bags are lost or my flight is stuck, and more insurance for defective products I buy and want to return.
Everybody should have a credit card for the free 30 day credit. Just make sure to pay off your credit card every month in full!
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Should I Have Closed My Credit Cards? is a Financial Samurai original publication.