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Okay, talk me down. I have 18 credit cards and would like to close five of them — all at once.
Actually, I’d like to close more, but I have five targets for now. The cards are paid in full every month. It’s been many years since I have carried a balance and I have very high limits, so charges barely make a blip on my credit-utilization ratio.
I can’t deal with managing them — the game of keeping them open and checking to make sure there are no mystery charges. I’m old but active, and I don’t want my family to have to deal with this when I go. How bad would it be to close down five at all at once?
Tired of Juggling
Dear Juggler,
It’s hard to find someone who would say closing a credit card is a good idea. The chief reason is that it will hurt your credit score. But you should not be held hostage by your credit score, and 18 credit cards is at least 15 too many, so close them you shall. You can’t break up with a partner without hurting their feelings, you can’t make an omelet without breaking a few eggs, and you can’t close your credit cards without dinging your credit score. That’s life, I’m afraid.
I’m in favor of you closing five and, hopefully, more. If you have to make any big purchase like a car and you need a loan, do it now. If you already have a mortgage and you don’t intend to take out a personal loan for the next six months or so, this is a good time to rid yourself of these cards once and for all. There are card closures that should take priority, once you have made sure that there is zero balance on those cards, and you have redeemed their points.
Cancel credit cards with the lowest credit limit (the less you use of your credit limit, the better). Generally, most experts recommend keeping your credit-utilization ratio below 30%. “Canceling a card may increase your credit utilization — the proportion you use of your available credit — which can also lower your score,” Experian says. If you have an overall limit of $1,000 and you use $250 of it, your credit-utilization ratio is 25%, it says; if you use $500? It’s 50%.
Some other rules of thumb when closing credit cards: The older your credit, the better risk you are for lenders, so cancel your newest cards first. Finally, prioritize canceling cards with hefty annual fees; if you’re not using them, there’s no point in paying them. “It can be good to show lenders that you can successfully manage multiple credit accounts, as they may see this as evidence that you’re a reliable borrower,” Experian says.
The main credit bureaus — Equifax EFX, Transunion TRU and Experian UK:EXPN — calculate their scores differently, so your score would be dinged differently depending on the bureau. For instance, a FICO FICO score has five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). In other words, FICO values consumers who stay on top of their finances.
Your credit score should be fully recovered a year from now, or less. Godspeed with managing your finances going forward, keeping your credit utilization low, and maintaining a long credit history. This will be crucial if you require any kind of loan over the next few years. The best time to take a hit to your credit score is, of course, when you don’t actually need it.
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