Most people tend to have far more credit cards then they need, this is one of the primary reasons that people have trouble with credit card debt. It is rarely necessary to have more than two credit cards, that really is all you should need. If, like most people you have more than this you may think it is a good idea to close some of your accounts. This may not actually be true.
In almost all cases closing your credit card accounts will hurt your credit score. This is because one of the major factors that goes into determining your credit score is the ratio of your outstanding debt to the credit you have available. The lower this ratio the better your credit score will be. If you close your accounts you reduce your available credit, therefore the ratio goes up and your credit score goes down.
Another factor in determining your credit score is how long you have had your accounts, the longer the better. This is especially true for accounts that have no negative reports on them, these are the accounts that you want to keep open. If you are going to close any accounts close the ones that have been open for the shortest period. Also be careful not to close too many accounts at one time, if you close a whole bunch of accounts at one time your creditors are going to wonder if you are having financial difficulties, that would hardly make you a good credit risk. Spread it out and close one account at a time.
So it may not be a good idea to close to your accounts, but then again it may be a good idea to close some accounts, confusing right. Another factor that goes into determining your credit score is the total amount of credit you have available. Too much available credit will hurt your credit score so you need to find the right balance between too much and too little. It is generally better to have too few credit cards rather than too many, the hit to your credit score when you close accounts is temporary, the hit when you have too much credit isn’t.
Finding the right amount of credit can be a difficult thing, there are a lot of factors that go into determining your credit score and any changes are going to affect it. Generally speaking the best advice is to select a few good cards that you have had for a long time and keep those while closing your other accounts one at a time over a period of a few months. There will be a temporary hit to your credit score but in the long run you will be better off. If you are applying for a mortgage or buying a new car, don’t close any accounts until afterwards so that you have as high a credit score as possible when applying.
My name is Maurice “Moe” Bedard. I am the founder of America’s #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.