When to cancel cards
In other sections of Free Trips & Tricks, I’ve suggested that signing up for credit cards is the quickest and easiest way to earn points and miles for free travel. I do my best to keep the Best credit card offers page up to date so that you can always be sure to find the best publicly available offers. Once you begin, though, you will probably find yourself wondering if you should cancel some of your current credit cards, and how long you should keep the new ones. Here’s what I think…
There are a few reasons people usually give for wanting to cancel cards:
- They think that having too many cards will hurt their credit score
- They don’t like dealing with the complexity of holding too many cards
- They don’t want to pay the annual fee
Let’s look at each of these, in turn:
Let’s differentiate between having many credit cards, and getting new ones. Simply having many credit cards does not hurt your credit score. In fact, it can actually help. More cards can mean a better credit utilization ratio (i.e. the more cards you have, the smaller the percentage of available credit you are likely to use at any time). Also, older cards can help because the average length of your credit history is important too.
Each new credit card you apply for will generate a credit inquiry (also known as a “hard pull”), and each inquiry can hurt your credit score a little bit, but the impact of those inquiries drops over time, and the inquiries fully drop off your record after a couple of years.
It’s certainly true that dealing with dozens of credit cards can be a nuisance. Rather than canceling cards, though, I deal with this by setting up automatic payments for all of my cards. Also, I keep in my wallet only the cards that I actively use. The rest are kept secure in my house. This way, the extra cards will continue to have a positive effect on my credit score. If you actively use more than one credit card, you may want an easy way to track which charges went on each card without logging in individually to each online account. A financial aggregator such as Mint.com solves this problem.
Many cards offer benefits that justify the annual fee. For example, most airline branded cards offer free checked bags, and many hotel branded cards offer a free hotel night every year. Some cards, though, are valuable just for the sign-up bonus. These are great candidates for cancelling.
- If a card has no annual fee, then don’t cancel it. Tuck it away somewhere safe instead.
- If you have a card that you’ve held for many years, but its benefits aren’t worth the annual fee, call to see if you can downgrade the card to a free one. This way you maintain your available credit and your long credit history, but you eliminate the annual fee.
- If you have a fairly new card in which the card’s benefits aren’t worth the annual fee, then wait until the annual fee comes due to call and cancel. If the credit card company offers you a great retention bonus to keep the card, you can always take the offer and try cancelling again the following year.
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