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Cancel Unused Credit Cards

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This is a Devil's Advocate post.

It’s a widely believed fact that your credit score can be improved if you keep your unused credit cards (rather than cancel them). By keeping these cards, you are increasing the average age of your lines of credit, increasing the total amount of credit, and decreasing your credit utilization – all good things when it comes to computing your score. So, why do I always advocate canceling unused cards? I advocate that because I believe it is the safest thing for you to do and is better than keeping unused cards for the credit score benefit.

Security Breaches

GE Money USA, a branch of GE that manages the in-store credit card programs of many retailers, recently reported that one of the nine back-up tapes put into storage at Iron Mountain had gone missing. After a search of the facility, they were unable to locate the missing tape. What was on it? It is supposed to contain the personal details of approximately 650,000 people. Think you are safe because you have nothing to do with GE Money USA? Unfortunately, you’re probably wrong because GE Money USA handles retailer credit cards for over 230 retailers, one of which is the ubiquitous JC Penney company. But look on the bright side, you might be getting free credit monitoring for a year! In all seriousness, while the actual probability you will be affected by data breaches such as this one will be relatively low, wouldn’t you be kicking yourself for keeping around an unused JC Penney card when you could’ve canceled it?

Promotional Offers

If you have a card and the credit card company starts offering hot new promotions for it, then you won’t be eligible for these new offers since you’ve already own the card. So, I’ve signed up for a lot of cards because they offered free promotions (I compiled a list of credit cards that offer $100 gift cards after you first purchase) and then didn’t use them much after the promotion (mostly because cards with better cashback came along), so why not cancel them so you can take advantage of newer promotions? There is generally a period after which the card no longer considers you a customer, usually six months, but after that you are like every other Joe (or Janet) on the street.

Please don’t read this to mean that I think someone should apply for the card for the promotional offer, cancel, then repeat. I’m not advocating that, in fact I think it’s stupid. The frequent applications for credit will destroy your credit score. I just mean to say you want to keep flexible, especially if you aren’t even using the card.

Out of Sight, Out of Mind

If you never use the credit card and never receive a bill, would you check your account for fraudulent activity? I’d say there’s a 99.9% chance you wouldn’t because you wouldn’t think to. You never used it so how could someone else have gotten access to it? However, it’s entirely possible that someone got access to your card and began using it without your knowledge. When thieves steal card information, it’s not uncommon for them to wait a few months before using it. Why do they wait? It’s harder to pinpoint when the loss occurred if it happened months prior to actual fraudulent activity.

Keeps Things Organized

You can’t lose a card if you cancel it! Let’s say you put all of your unused cards into your desk drawer. Six months later, someone breaks into your home and steals all of your cards (or just one, it’s actually worse if they only take one!), how can you possibly remember which cards to cancel? (you would know if you had a personal finance user’s guide!) Let’s say no one steals it but one of them expires and they send you a new one, only to have it intercepted at the mail box by an enterprising identity thief. Let’s say no one does anything bad and you have the card in your desk without incident, what’s the benefit? You have some extra clutter sitting around, extremely expensive clutter if it gets into the wrong hands.

May Not Actually Help Score

One of the main points behind keeping a card is that it improves your average credit line age but that may not be true. If you cancel a recently issued card, it could be possible that the new card is negatively affecting your credit line age metric. While it’s difficult to calculate and probably a waste of time, the credit score boost you are trying to get with the unused card may not be as good as you thought it was.

Ultimately, I think that keeping unused cards lying around is a recipe for disaster. I cancel cards that I don’t use, what do you do?

{ 11 comments, please add your thoughts now! }

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11 Responses to “Cancel Unused Credit Cards”

  1. jayne says:

    The problem with promotional cards is that the best ones have annual fees. Some will waive the annual fee as long as you use the card, but after about 3 or 4 cards like this, it gets a little silly trying to remember to pull them out of your files once a year to go buy a pack of gum and pay it off.

    I think a better strategy is to get a really awesome, no-fees card and develop a good two year history on it. Then, focus more on increasing your line of credit with that one to keep a debt usage ratio. Ask for a LOC increase the moment you get it, and every 3 months after that. After your credit limit reaches a certain point, closing and opening new cards will have a negligible effect on your credit score.

  2. Lily says:

    I try not to apply for cards I won’t need. Granted, I’ve only been in the credit card game for a couple of years, but so far I’ve only gotten (and canceled) one card that I don’t regularly use. It was, as a matter of fact, a retail card which I used for a 10% discount. Now I’m down to 2 rewards card and 1 card I use just for a monthly credit score update.

    This is a great Devil’s Advocate post, though I still think the decision to cancel depends on the card and the person who holds the card.

  3. Llama Money says:

    This is actually something I’ve been meaning to do. I probably have 45 or so credit cards ( yikes ), and I want to pare that down to 10 or less. Thanks for the reminder of the possible problems by keeping extra accounts open.

  4. Randall says:

    I love these Devil’s Advocate posts, but this one almost qualifies as a legit view. I went through the ‘kill everything’ phase after a deep Dave Ramsey session, and have had a LITTLE remorse.

    My ultimate goal is not to use CC’s at all, but until I get to that point, the FICO score is important for my remaining credit cards. Getting rid of all my empty accounts only hurt me in the long haul. I agree with not keeping cards with annual fees, but any of the others I should have just cut up and forgot about. (Not closing the account, just cutting up the card.)

    Once I get EVERYTHING paid off I may have an account-closing-and-plastic-shredding day, but until then I’m keeping the accounts active.

  5. ChristianPF says:

    For the sake of maintaining some level of organization I have to cancel my unused credit cards. To me the comfort of simplicity is well worth the potential small hit to my credit score… I will always keep at least my oldest credit card open, but the newer ones, I close as soon as I can.

  6. RacerX says:

    You can really muck your credit FICO score my canceling some cards. Your number needs to see a good mizx of credit along with history. Both of which you could lose.

  7. Lord says:

    There is only so much real estate in my wallet and I have no desire for a card that I will never use. That said, there can be long periods when I don’t use one. One card is for personal expenses, another business, another for routine expenses, and another for backup because being without one if you ever have to cancel one is too inconvenient.

  8. Dee says:

    so I’m thinking about canceling my cards, how do I go about doing it. Is there one number or do I have to contact each individual card company?

  9. Colin Joss says:

    I have taking this advice in extreme way. I only have 1 card and don’t think this as good. Actually 2-3 each with its different package and offer should be better.

    Colin Joss
    East Lothian, Haddington
    United Kingdom

  10. Angel says:

    Simplify and cancel those unused cards. If you’re not using them why keep them? I paid off and canceled one last year and I was so relieved, one less bill to pay, how great that is! And now I am working towards paying off one more card and then cancellation. One less bill to pay, how great is that!

  11. Not canceling your credit cards is strictly a short-term strategy to keep your FICO up. The main reason is that the lenders now look at what is called the “Balance to Limit Ratio” as opposed to total balance.

    If I cancel a credit card with no balance, and keep one that carries one, I raise my overall debt vs. total available number. This makes me look maxed out.

    Over the long run though, one card with a low balance is the way to go… Multiple cards with unused balances still presents a major risk to a lender.

    If you are going to keep credit cards open in the short-term, there is no reason why you still wouldn’t cut them up if you are not planning on using them. They’re still open as far as the CC company is concerned, but you’re not tempted to use them!

    Ken Clark
    CollegeSavings.About.com


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