You may ask yourself what to do with those old credit cards that are taking up space in your wallet. Your first thought maybe to close the accounts. Surprisingly, closing them may not be the best option. Here are some things to consider.
When to close
If you have a card that is costing you money or has unfavorable terms, consider closing the account. Cards with annual fees, high interest rates, low credit limits, or that are restricted – like a retail store card – are good candidates. Always get rid of newer cards before the older cards. This way there’ll be little impact on your credit score because newer cards have a limited credit history.
When to keep open
Your credit history often begins when you get your first credit card, so keeping that older account open will benefit your credit score. Keep cards with favorable terms, high credit limits and low interest rates. In case of emergency a card could come in handy. While savings should always be used first, it’s good to have access to backup funds just in case. In certain cases, a store card could be worth keeping because of the points towards discounts and rewards you can earn. If you have a card from a store you shop at often and the discipline to not spend more than you can pay off in a billing cycle, earning those rewards and extra discounts can be a good thing.
When you decide to close
Just because you don’t use a card, doesn’t mean the creditor is going to automatically cancel it. When you’re ready, contact your creditor’s customer service department to request the account be closed. Don’t close multiple cards all at one time. Space the closures out over time to reduce the impact on your credit report. Then check your credit reports for updates and errors after you’ve closed accounts. Visit AnnualCreditReport.com to get a free copy of your credit report each year. Wait 30 to 60 days for the credit bureaus to update your records. You may still see the account on your credit report, but the status should be updated to “closed.”
There are several factors to consider before closing a credit card account. Weigh your options carefully before making a decision.
Article provided by Local Government Federal Credit Union.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.