Editorial Policy

5 times when you should close a credit card

Allie Johnson

January 11, 2016

Closing a credit card can hurt your credit score and cut the amount of credit at your disposal, but it makes sense in certain scenarios.

Good reasons to close a card range from the logistics problem of juggling scads of credit card accounts to financial issues like high fees or difficult practical reasons such as divorce.

Here are five times when it makes sense to close a credit card:

1. You've got too many cards to manage.You should keep track of your credit card accounts and log in online regularly to make sure there are no unauthorized charges or mistakes, says Ruth Susswein, deputy director of national priorities for Consumer Action.

If you have a large amount of available credit you're not using and so many cards that you can't keep track of them all, it might make sense to close one or more, she says.

“From a management standpoint, it's better to have three cards than 30,” says Rondi Lambeth, a certified FICO professional and host of the radio show “Your Credit Matters.” But, he adds, it's probably not better for your credit score.

From a management standpoint, it's better to have three cards than 30.”
— Rondi Lambeth,
host of the radio show
“Your Credit Matters”

2. The card costs too much. If you're tired of paying an annual fee, when should you close the card? “If it's an astronomical fee, and it's just costing you too much money,” Lambeth says. That's especially true if you're not using the card perks you're paying for with the fee.

However, your card issuer might switch you to a similar card that has a lower (or no) annual fee, you won't lose available credit and possibly take a hit to your score. Typically, low or no-fee versions of the card will have fewer perks and less generous rewards though.

3. You have retail cards you never use. Are you a shopper who can't resist the siren song of 10 or 15 percent off a day's purchases, so you've opened a card at every store in the mall? Store cards aren't as useful as general-purpose credit cards because of their limited use, Susswein says.

For example, if you want to buy a new fridge on credit, you can't use that Kohl's card in your wallet. And if you never use a retail card, the retailer probably will close it anyway after about a year of inactivity, Lambeth says.

4. You're getting divorced and share a card. “If you're getting divorced, absolutely close the card,” Lambeth says. First, call the card company to make sure it's actually a joint card, owned by both of you, rather than a card owned by one of you on which the other is an authorized user, Susswein says. If it's truly a joint card, the best strategy is for each of you to open a new card on your own and transfer half of the balance (if there is one) to each card, she says.

Of course, you have to trust your soon-to-be-ex to make the balance transfer as promised, she says. Keeping a joint card open in a divorce can backfire because each of you is equally responsible to pay the bill. A judge might order one spouse to make payments on the account, when bills are being divvied up, but he can't change the contract you have with the lender, Lambeth says.

Don't ever leave yourself with so little credit that it hurts you.”
— Ruth Susswein,
deputy director of national priorities
for Consumer Action

5. It's an old secured card you no longer need. Did you sign up for a secured card back when you were building your credit, but now have unsecured credit cards in your wallet? If so, the bank might be holding onto hundreds of dollars of your cash that you put down to secure the card. In that case, close that old secured card so you can get your money back, Lambeth says.

A few months after closing the card, follow up. Check your credit reports for free at AnnualCreditReport.com, which you should be doing regularly anyway. Make sure that the account is listed as closed at the request of the consumer, not the issuer. “You don't want it to look like your lender took away your credit,” Susswein says.

3 tips for closing a credit card

If think you want to close an account, make sure you do it the right way. Follow these three card-closing tips:

1. Think it through. Before you close a card, look at how long you've had the account, your total credit limit and how often you use the card. If you're carrying balances, closing cards can change your credit utilization ratio — the  amount of available credit you're using — and that can have a big effect on your credit score, says Susswein. Experts generally recommend not using more than 30 percent of your available credit. Really look at the impact on your credit. “Closing one account can destroy someone's credit,” says Lambeth.

2. Close one card at a time. If you have multiple cards you want to close, go slowly, Freeman says. Pick one card to close first, Freeman says. Then wait three or four months and close another, she says. That will help you monitor the effect on your score and avoid too big a hit at once. “Always close cards in a staggered manner,” she says.

3. Keep enough cards. Keep at least three cards open, Lambeth says. It will help your credit score to have more cards open, and it could harm you to have fewer, he says. You also want to make sure you have enough credit for your needs. “Don't ever leave yourself with so little credit that it hurts you,” Susswein says.

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