Is it a Good Idea to Cancel Credit Cards?

There are many reasons to consider canceling a credit card, but it's probably not a good idea. Many finance experts recommend against it, because canceling a card can actually hurt your credit rating.

Effects

Though it's not always the case, canceling a credit card can hurt your credit score even if you're trying to be more fiscally responsible.

Reasons

The reason your credit score could be hurt by a canceled card is that it changes your total debt as a percentage of your available credit. So eliminating a card you don't use can raise that percentage to a level that makes you more of a credit risk.

Benefits

There is really no benefit to canceling a credit card. Psychologically, it may give you the notion that you are freeing yourself of potential debt but it doesn't serve a practical purpose.

Considerations

There are times when you may need to cancel a credit card if it is lost or stolen. If that's the case, simply cancel the old card and have a new one issued.

Expert Insight

According to financial advice Web site The Motley Fool, keeping an old credit card account open even if you haven't used the card for years is a good idea, since lenders see long-term commitments as a sign of responsibility.

References

• Effects of Cancelling Credit Cards
• Cancel Credit Cards Very Carefully