Canceling a credit card is OK -- if done wisely

When choosing which card to close, steer away from your oldest card

By Kim McGrigg

Credit Care

Kim McGrigg is Community Manager for Money Management International, where she provides personal finance education information to consumers. Ask a question 'Credit Care' archives

Dear Credit Care,
I had poor credit for years and managed to get a secured credit card. Eventually, I was able to get a few others, all with credit limits at $500 or lower. Recently my credit was built up enough to qualify me for two new cards with much higher limits. I always pay off my cards each month. Will it hurt my credit rating to cancel the four cards with $500 limits? -- Rebecca

Dear Rebecca,
Congratulations on successfully managing your credit card accounts and paying off your balances each month. What you are doing is obviously having the desired affect on your credit rating as you have qualified for additional credit at better terms. If your two new cards with higher credit limits are secured credit cards as well, you might consider requesting a nonsecured card from one of the banks that issued you the secured card. The reason is that you will not have to tie up as much of your money in deposits for the secured cards if you can qualify for a nonsecured card. You could then transfer the deposits into your emergency saving account, and the money would be available if you needed it.

In addition, secured cards typically have higher fees than nonsecured cards, but terms vary widely for all cards. It is worth your time to shop around for cards with the best terms for your current needs. It could be that you will qualify for a nonsecured card with a different card issuer with better terms than your current card issuer offers.

You should not need to keep six credit card accounts open. However, your credit score is based, in part, on your length of credit history so you do want to keep your longest-standing account open. You might consider keeping open the $500 limit credit card account that has been opened the longest and closing the three others. Once you close the accounts and all balances or purchases on the cards have been paid, the card issuer will refund your initial deposit to you. Check the terms on the latest cardholder agreement to learn the time frame the card issuer is allowed to return your deposit. The time frame may be longer than you would like, but the issuer has the full amount of time spelled out in the agreement to return your deposit.

Closing the accounts that you do not need will mean you have less available credit to access, which may be important for future credit needs. Potential lenders like to see that you handle the credit that you have wisely, but also that you don't have access to large amounts of unused credit.

Keep up the good work paying on time and as agreed and you will be well on your way to restoring your creditworthiness.

Handle your credit with care!

See related: How to cancel a credit card -- without hurting your credit, Closing a credit card account can hurt your credit

Kim McGrigg is the community manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. You can find more money management advice on Blogging for Change and MMI's Facebook page.

Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to Credit Care.

Published: November 21, 2011

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