With almost 75% of Americans for credit cards (1), this form of payment is undoubtedly popular. In fact, it is quite common for Americans to wear multiple credit cards in their wallets.
Take Jane, for example. After learning about the rewards and advantages offered by many credit cards, Jane decided to take advantage of his wallet with more than 20 different cards. And although that is a lot of plastic, Jane is not the only American to take more than one credit card. According to Experian, Americans carry an average of 3.7 credit cards they use regularly. (2)
Jane carries many more credit cards than the national average, and despite the fact that he pays them every month and has good credit, he no longer sees the benefit of carrying so many cards.
With this in mind, Jane would love to significantly reduce her number of cards, but she is worried about the impact that this could have on her credit score. A friend of her told Jane that canceling credit cards can make her credit score decrease, and her friend is right.
When canceling a credit card, it is important to think carefully about the impact it can have on your credit score, which significantly affects your financial well -being.
Cancel a credit card can affect your credit score in different ways, although the impact is usual temporary:
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It loses its positive payment history and the payment history is the most important factor to calculate its credit score, which represents 35% of its general score (3)
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Increase your credit use ratio because it loses the credit line of that card. The use ratio is the credit relationship used versus credit available. The cancellation of a card eliminates that part of the credit of your available credit, but since the credit you are using does not fall, it ends up using more than your credit available. This relationship is the second most important factor in the credit score formula, and a lower use ratio is better than a higher (4)
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Shorten the duration of your credit history and change your credit combination, which are also taken into account in your score
The specific amount that can be released your credit score varies according to many factors, including how many other credit cards are, how old are you and how much of your credit available is using. (5)
For Jane, canceling only one of his more than 20 credit cards may not damage his score so much, but it is likely that canceling many of them has a negative impact on his credit profile.
There are some cases in which the cancellation of a credit card makes sense, despite the small temporary blow of its credit score. Deciding whether to close a credit card or cannot be complicated, often helps to weigh the risks against rewards.
For example, if you have difficulty monitoring all your credit cards and, often, you are delaying payments, the cancellation of some of them can be justified. Backward payments can have a very negative effect on their credit score.
In addition, if any of your credit cards have annual rates and do not use them enough to justify the cost, or if interest rates are too steep to bring a balance, close those cards can also make sense.
However, there are some cases in which it could make sense to maintain a credit card. For example, if your credit cards do not have annual rates and do not spend too much on them, there may be few reasons to close those cards. You may also want to keep an open credit card if it is your oldest credit card account, or if you don’t have other credit cards.
While Jane’s credit score can fall a little after canceling a credit card, the fall is usually temporary. While continuing to pay time on your other cards, the impact should not be too dramatic and your credit score should recover.
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If Jane decides to cancel some credit cards, they must first focus on those who have an annual rate. If you do not use them regularly, there is no reason to pay a rate just to avoid a small blow to your credit score (especially if you do not expect to get a large loan in the short term).
Jane should focus on closing new accounts or accounts with the lowest credit limits, since this will make the impact on your credit score a little less dramatic. The credit offices tend to favor a long history of use of credit in a responsible manner, and cancel an earlier card could damage their credit when that account no longer appears in its credit history.
Jane should consider which credit cards have the best rewards programs that are well paired with their expenses. If she kept those cards and pay them, or at least pay them a little, this could help Jane lower her credit use relationship during the process of canceling the cards you no longer need.
Being strategic, Jane can cancel the cards you don’t need while limiting the effect you will have on your credit score. You can also close undesirable cards slowly over time, instead of all at once, to further limit the impact on your credit score.
For Jane, who no longer wants to carry more than 20 credit cards, it makes sense that she tries to slowly reduce that number.
However, there is no standard number of credit cards that an American must carry. Pasteing with the national average (three to four) would give Jane the opportunity to benefit from the rewards programs that are directed to different expenses, without giving him too many to administer.
But, ultimately, it is what Jane can handle. If you have so many credit cards that you cannot track payments and do not regularly reward or use the advantages, then you should make a change.
Carrying 20 credit cards is a lot to deal with, so remember that every time a new card opens to obtain bonds or rewards, you may be creating a headache for you in the future.
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Bankrate (1); Experian (2, 5); Myphic (3, 4)
This article provides only information and should not be interpreted as advice. It is provided without guarantee of any kind.
