I just went through my little pack of credit cards and saw that I had a Sears master card that I have NEVER used.
In fact the card was not even activated and still had the little sticker on it. I called to activate the card and then promptly closed it out.
Now we all know how the general nugget of wisdom in the personal finance world is that you should not close old credit cards, even if you no longer use them. This is in order to show that you have a larger amount of available credit to potential lenders.
I usually follow this advice but I have a lot of credit cards. I have multiple cards from some lenders like American Express and Chase. I am trying to simplify my credit life so I am going against the grain and closing off the cards I do not use.
I am closing out the cards that I have NEVER used because they are just taking up too much space in my life. I know this will drop my available credit and have a negative impact on my credit score…..but since I am not adding to my debt load then my credit score will recover soon.
I do not need to have a super fabulous credit score right now because I am not looking to get a mortgage or any other type of loan any time soon. I am also not looking to open any new credit accounts unless it offers something like the fabulous opening bonus that I got with my Chase Freedom card.
I also closed out some department store cards from Dillards. I will be closing out the ones from JC Penney and Bealls as well because I do not use those cards. Again, I know this will lower my available credit in the eyes of potential lenders, but it will save me some piece of mind in the future.
The one card I regret closing off was my Victoria’s Secret card. Victoria’s Secret used to send me little samples and other items and I really miss those. The next time I go into a Victoria’s Secret store I think I will open one of those cards again.
My wife gets those samples too. The main reason you do not close old cards is that the amount of money you borrow vs. the amount of credit you have available determines 35% of your credit score. So a person who has $10K of availble credit and uses $7k has a lower score than a person who has $7K of available credit and uses $3k. The best strategy is to make sure you never use more than 33% of your available non secured credit at any one time.
While you are right that about the negative impact due to a change in your debt available ratio, you are forgeting another significant factor.
All your open and unused cards also represent years of perfect credit histories. These histories are boosting your credit scores.
A more optimized way to clear unused credit cards is calculate your total debt available, and cancel no more than 10% of your total debt, with the caveat that newer cards should be closed before older cards.
I’d rather have two good high limit credit cards than a whole bunch of credit cards. I hate getting one credit card statement a month. Can’t imagine getting 5 or more.
I get all my statements online so I don’t dealt with the paper hassle. I am still working on closing a few more cards but I don’t want to take a big hit on the credit score just now.