Should You Cancel Credit Cards?

Benefits of Canceling Cards

When you see a credit card as a license to overspend, canceling that card can prevent you from getting into more debt than you can handle. In addition, if your credit card charges an annual fee, canceling it can save you from having to spend money for a card you don't even need. Plus, for each credit card you cancel, you have one less bill to keep track of each month and one less card filling up your wallet.

Credit cards can be a safety net in case you encounter a situation in which do not have the money to pay for a necessary purchase. If you do not have an emergency fund built up, consider keeping at least one credit card open for use only in emergencies. Another potential drawback is that if the card has a rewards program, you could miss out on rewards. This is especially relevant with store credit cards, which you might be tempted to close because you rarely use them. However, when you do use them, they provide helpful discounts that can save you money.

Canceling a credit card can have either a positive or negative effect on your credit score, depending on your situation. If you carry a balance on at least one credit card, canceling an unused card can lower your credit score. This is because of an increase in your credit utilization, which is based on the proportion of credit you use in relation to your total available credit. However, if you have lots of credit cards, closing some of them can help your credit score. According to The Motley Fool, having more than seven credit cards can damage your score, so closing cards can offset the damage.

If you decide you would like to cancel at least one credit card, choose the cards to cancel carefully. Some credit cards are more beneficial for you or for your credit score than others. For example, keep at least one credit card that you have had for a long time so you can maintain your length of credit history. If you are married, keep at least one credit card that you hold solely so if you get divorced you still have that credit to fall back on. If you have a rewards card for which you earn enough rewards to offset the annual fee, if it has one, keep that card.