The average American carries about 8 different credit cards in his pocket. That adds up to a serious bulge that can be uncomfortable on any budget. It may seem like a financially savvy idea to find some scissors and get to work, but you should probably think twice before doing so. Before you start slicing your cards to ribbons, however, make sure you aren’t doing yourself more harm than good. Some cards are worth keeping around.
Do unused lines of credit hurt or help your credit score? Will removing old information from closed accounts make you look better in the eyes of banks and lenders?
Cutting Up the Cards Doesn’t Heal the Financial Hurt.
Once you’ve got debt on a credit card, you can’t deny its existence. It’s on your credit report for at least 7 years, even if you cancel the card the next day. This includes any red marks, late payments, charge-offs or overspending that might be associated with the card.
Why Deny the Benefits?
It takes years to build credit. Using a credit card responsibly speaks volumes. That’s why removing old accounts that have no negative items is a bad idea because these accounts actually help your credit. Fifteen percent of your credit score is determined by how long you’ve been borrowing. It’s good to build your credit with a credit card, but the key is using it responsibly. Don’t use it outside of your means, and make sure you pay it off at the end of the month.
Closing Accounts May Hurt Your FICO Score.
Lenders look hard at the relationship of your revolving accounts to your total available credit. If you have to run a deficit, make sure that it is no more than 30% of what you’ve been limited to, although truthfully it’s best to keep it near zero every month. Keep room in your credit gap, but don’t be tempted to move closer to the edge. You need room to grow in the case of emergencies, and it shows banks that you have the resolve to stay more within your means. Keep a comfortable space between what you owe and what you are allowed to put on the card.
Too Many Cards, However, Can Hurt.
If you have more than 7 credit cards, it will hurt your image in the eyes of the bank. In these cases, it’s best to consolidate debt onto the card that has the lowest interest, simplifying your debt to one lender. This also makes it easier to pay off as you can better focus your energies on one card as opposed to a dozen.
Keep the Old Ones, Though.
Commitment counts. If you’ve had a card for a long time and it offers competitive interest rates, it may make sense to consolidate the rest of the cards onto this one card so it can show you’ve had a lasting commitment in an effort to build your credit. Lenders see long-held-onto cards as proof that you are a responsible citizen who can follow through on commitment.
Keep the Perks.
There are certain goodies and perks offered with good credit cards that shouldn’t be laughed at. You can consolidate your debt onto cards that offer frequent flyer miles so you can better enjoy the benefits of your money. Other cards might offer inexpensive memberships to clubs. Still, others offer rewards and various financial incentives. Before cutting up the card, consider its benefits. There may be plenty of reasons to hang onto it.
Responsible Use.
Credit cards aren’t necessarily evil, but they do need to be used responsibly. You might consider putting one in a safe deposit box and using it only for emergencies. Another idea is to only spend what you can pay off each month. If you can learn to use a card responsibly, it can be an incredible builder of financial credit, making it possible to buy a home or a car someday. If you can’t use it responsibly, however, it can quickly dig you a hole. If you really can’t handle it, consider the scissors. If you think you can handle the temptation of a card, however, learn to use it responsibly to build your credit, rather than tear it down.
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