Should I cancel old cards?
Should I cancel old cards? Find out the impacts of closing a credit card account and learn whether maintaining or closing unused accounts is better.
Old unused cards: cancel or maintain?
Many wonders if it is better to cancel or maintain old cards. In fact, nowadays, many have more than two credit cards.
However, not all cards are regularly used. Generally, at least one card ends up in the back of a drawer.
Canceling an unused credit card might be a way to clean up the drawer.
On the other hand, it is important to learn about the impacts of closing an account.
Then, continue reading to find out more about it!
What are the impacts of canceling your old credit card?
Before telling you the impacts of canceling an old card, it is crucial to understand more about credit ratings.
Essentially, credit cards may be good tools for those who need to build credit. Of course, you must maintain an account in good standing in order to establish creditworthiness.
In summary, paying your bills on time, maintaining a stable utilization rate and a total amount of available credit, and keeping the oldest cards that built your credit history, allows you to establish a reliable credit path.
Basically, institutions will consider you a good consumer.
On the contrary, your credit score will be dramatically damaged if you cannot maintain your accounts in good standing.
Take a look at the list below to discover how each point impacts your credit rating before deciding to cancel your old cards.
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1. Credit card utilization rate
The amount of revolving credit you have been using divided by the total credit available you have represents the credit card utilization rate.
To sum up, this rate – usually represented by a percentage – refers to how you manage your debt.
In essence, it allows lenders to check if you are a good consumer.
The credit card utilization rate counts as a big part of your credit score.
To calculate it, you need to consider the total amount of credit available and the total amount of balances you have.
For example, suppose you have two credit cards. On card X, you carry a balance of $100; on card Y, you carry a balance of $400.
Also, you have a limit of $1,000 in card account X, and the same goes for card account Y.
The total balance is $500. And the total credit available is $2,000.
Then, your utilization rate will be 25%.
This means your rate is good. Usually, lenders evaluate rates that are below 30% as good. That means you are managing your debts well.
Suppose you cancel the old card Y; your rate will dramatically increase since your total amount of available credit will decrease. Thus, your credit score will be impacted.
2. Total amount of available credit
As mentioned before, the total amount of available credit refers to all credit limits you have on credit card accounts.
In case you decide to cancel old cards, your total limit will decrease.
So, your credit card utilization rate will be impacted, as well as your credit rating.
It is important to calculate the impact before proceeding with an account cancelation, especially if you don’t have a perfect credit score.
3. Accounts age
Generally, the age of your oldest accounts counts for a reasonable percentage of your credit score.
According to major credit bureaus, it typically counts on about 10% to 15% of your credit rating.
Thus, if you decide to close an old card account, keep in mind your credit rating will be impacted, too.
Should I cancel old cards?
As can be seen, closing old accounts to be free of old cards in the back of your drawer may not be the best move.
In order to proceed with a cancelation, it is crucial to calculate your credit card utilization rate, your total amount of available credit, and the age of your accounts.
In addition, it is essential to check your credit rating to make sure how good your creditworthiness is so that the impact will be minor if you decide to close an old account.
To sum up, take a look at some reasons to maintain an old card active:
- It allows you to keep your credit card utilization rate low;
- It contributes to your total amount of available credit;
- It helps to maintain your total age of accounts look older;
- It can be useful in an emergency situation.
Of course, all those points are put into consideration if you can keep your accounts in good standing.
In case you cannot handle your debts, the best way is to find out how to do financial planning to repay your commitments.
Recommendation: What is better for building a credit – store card or credit card?
Maintaining an old card may be a great deal for you to look good in terms of creditworthiness.
Prior to that, it is way more important to decide which card to choose wisely before assuming a credit commitment.
Many people don’t use all their credit cards because they have applied for too many without considering their needs, objectives, and budget.
Then, at least one ends up in the back of a drawer, as mentioned before.
The first thing you should do is consider the reason why you need a credit card. If your goal is to build credit responsibly, many options are available.
But there are so many that it can be challenging to find the best one.
Also, there are store cards besides the traditional credit cards you are familiar with. Although getting a store card may be easier since the eligibility requirements are not that many, interest and fees can be way more expensive.
To find out more about the pros and cons and the differences between a store card and a credit card, continue reading the following article to decide which card will be the best for you!
About the author / Aline Augusto
Reviewed by / Aline Barbosa
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