Will canceling cards hurt a great credit score?
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Dear To Her Credit,
I recently became more involved with my personal finances. Within this year, I paid off my student loans and car loan, got a new credit card with good rewards, and I am thinking about getting a house within the next two years.
I just checked my credit score -- it's looking good at about 790. However, my credit report shows that I still have six credit and charge cards open. I don't use any of them, except the one I just got last month. They all carry a zero balance, and they seem like dead weight. I opened them over the past six or so years -- mostly to get one-time deals at Best Buy, Macy's, Banana Republic and so on. I don't see a need for them and would like to get rid of them. I just want to keep the one I got recently.
Any suggestions? Should I get rid of them all or just a few? -- Jana
A credit score of 790 is doing more than looking good! It's well above average. To achieve that score, your credit report must be pristine, with virtually no payments more than 30 days overdue. You've demonstrated financial responsibility by paying back at least two kinds of debt -- installment debt and credit card debt. You are in excellent shape to go shopping for a house, assuming you also have the income and down payment to support your application.
It's debatable whether closing the extra store cards would change your credit score at all. Sure, your available credit will go down. If you carried a balance on any of your cards, that might affect your debt-to-available-credit ratio. However, because you keep a zero balance (yay!), that's not an issue.
With six cards open, you may have a notation on your credit score report under "factors that reduced your score" saying that you have too many cards. I have about that many cards, and my report always says that. However, my score is high enough that I think if it's hurting anything, it's sure not hurting it much.
Your credit score is high enough that a difference of a few points here and there won't change whether you get a loan or the best interest rate for that loan. That doesn't mean it's OK to slack off. It's amazing how quickly a score can drop if a person gets careless. But any score over 740 or 760 already qualifies you for the best rates possible.
I'd add one important asterisk, though -- think twice before you close your oldest credit accounts. The length of your credit history accounts for 15 percent of your credit score. The scoring formula evaluates the ages of your oldest and newest accounts, along with the average age of all your accounts. The formula gives the greatest rewards to those with long histories of on-time payments. If you, with your good payment habits, close a long-standing account, the record of good payments will eventually drop off your report and could hurt your score down the road.
There are good reasons for closing extra cards, aside from credit score considerations. The biggest issue is that someone could use your card without your knowledge. If that happens, you can fight the unauthorized charges and not be liable for them, but why go through the hassle if you can avoid it? If you don't want the cards, go ahead and close some or most of them.
Another reason many people close cards is to get rid of the temptation to spend on them. Even if you don't carry the cards with you, it's easy now to show identification and charge purchases to your store charge account.
On the other hand, some stores, such as Macy's regularly have sales with additional discounts if you use its card. That extra 15 percent off can help you score some real deals. Having one or two department store cards where you shop regularly won't hurt anything.
In addition, you might want to keep one Visa or MasterCard account besides your favorite one. If something ever happens to one card, for example, if the issuer suspects irregular activity, your account can be frozen. If that happens when you're standing at the hotel desk a thousand miles from home, you'll be happy you kept a backup card open.
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