Did you know that the average consumer in the United States carries 8 credit cards in their wallet or purse at any one time? It’s true but, if you want to get rid of some of those cards in order to lighten the load, and the risk of temptation, you might just want to simply cut up those cards and cancel them.
And that might not be such a good idea.
First let’s take a look at a few facts. The first is that once you open a credit card it’s on your credit report for at least the next 7 years, even if you cancel it the day after you receive it. If that card happens to have any negative history like overspending, late payments and charge-offs, those are going to be on your credit report for the next 7 years as well.
Seven years from now all of those negative entries will fall away but, rather than closing that account and tossing that card in the trash, you might want to keep it instead.
The first reason is that, since it’s been paid off and those negative items are history, you now have a clean credit card with a long-term credit history. Since 15% of your credit score is based on the length of time that you’ve been borrowing, closing that credit card for good really isn’t going to help you. In fact it could hurt your FICO score.
The reason is because lenders are always looking at a number of things, including your total available credit, the balances on your revolving accounts and the ratio between the two. Since closing any open accounts will mean that they aren’t factored into your ratio any longer, the amount of debt you have as a percentage of available credit will actually increase. Not good.
In fact, unless you really have no willpower at all, there’s no need to cancel those credit cards at all. Over time holding on to them will have a positive effect and could even increase your credit score but closing them won’t do anything for your credit score and might even hurt it in the short run.
Still, if you want to get rid of some of those little pieces of plastic, your best advice is to keep the ones that you’ve had for the longest time as they will show lenders that you are a responsible person who can handle credit in the long-term. Also, if you have cards that reward you with things like points, cash back, miles and so forth, and you actually take advantage of them, those cards are worth keeping if you make sure to pay them off in full every time you use them.
Cards that have a high annual fee that, even after you call the lender, can’t be waived, are probably worth putting through the heavy-duty shredder. Buh bye.
