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Best, Worst Times To Close A Credit Card

credit cards piled up.Your waistline may not be the only thing that got bigger over the holidays. Many of our wallets also got fatter as we added a credit card or two to take advantage of sales promotions.

While losing weight is almost always a good idea if you’ve put on too many pounds, canceling your credit cards is not always a smart thing.

Even if you’re not using a card, that’s not necessarily a good reason to cancel it, unless it carries a high annual fee. It might be better to simply cut up the card or put it away in your sock drawer.

In fact, closing a credit card account can damage your credit.

“Many people don’t realize closing a credit card can damage their credit scores, especially if it’s been open for more than three years,” says Mike Sullivan, chief education officer at Take Charge America, a Phoenix-based nonprofit credit counseling agency. “Canceling a credit card simply because you aren’t using it can be a bad move.”

If you feel you have too many cards and want to simplify your financial life, carefully decide which cards you can safely get rid of without damaging your credit score.

Sullivan recently offered guidelines to help you determine if it makes sense to cancel a particular account. We’ve added a few of our own.

It makes sense to close a card if:

  • You have a hard time controlling your spending and simply cutting up the card doesn’t help. Close the account to avoid falling deeper into debt. “Life circumstances or a deep-rooted desire to ‘charge it’ may outweigh the blip on your credit score,” Sullivan says.
  • You have a joint account and are separating or divorcing from a spouse or partner. Either cancel that account or have the other person’s name removed immediately. A vindictive former partner can wreak havoc on your credit history and stick you with big bills.
  • You’re paying high fees and a high interest rate. Try to pay off the balance and then cancel the card, or transfer the balance to a cheaper card. But watch those balance transfer fees.
  • You think you’ve been a victim of identity theft and don’t think freezing the account will protect you from fraud. Call your issuer first to find out if there have been any strange purchases on your account.

You shouldn’t close a card if:

  • You’re planning to apply for a mortgage, auto loan or other large loan. Don’t take on any new cards, either. Too much credit activity or too many credit applications can prevent you from qualifying for the loan or getting the lowest interest rate.
  • Your card charges a stiff cancellation penalty. It may be wiser to simply put it away or cut it up. Read the fine print in your credit agreement — most issuers post them online — or call the company to find out if there are any penalties associated with closing the account.
  • You’re carrying a balance on other accounts. If you close another card, that will make your debt-to-credit ratio look worse and hurt your credit score. For example, if you owe $5,000 and have total credit available of $50,000, your debt-to-credit ratio would be 10%. But if you close accounts that have available unused credit of $25,000, your ratio would jump to 25%, a sure way to reduce your credit score.

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