Old credit cards can be expensive to keep and vulnerable to fraud, but they can also provide a financial cushion when you need it. Should you cancel yours?
Using credit cards to help manage household finances and stretch paycheques has become a way of life in the UK – but it has also resulted in people acquiring more and more credit cards over time.
Cancelling your old credit cards can either help you or cause you problems with your cashflow, credit score or more – so you need to think hard before you cut them in two.
If you’re considering cancelling one or more of your own credit cards, these are some of the factors you need to take into account first.
Reasons to cancel your credit cards
You might immediately think that fewer cards will result in less temptation to spend or help reduce the risk of fraud or unauthorised access, but old cards can also cost you money.
Improve your credit score
That’s correct. Fewer cards means less available credit, which credit card companies see as less risky because you can’t run up big balances. As a result, your credit score can improve, resulting in a better deal or lower APR on your next card.
New customer offers
Don’t you hate it when new customers get all the best deals, including attractive introductory 0% APRs? Then don’t hang on to old credit cards. Once you cancel a credit card, you can’t normally apply for a new one from the same company for between 30 days and six months. But after that, you’ll have access to all the same deals as new customers.
Avoid high interest rates and annual fees
Older cards tend to have higher interest rates than your more recent ones – especially if you’ve subsequently taken out deals while your credit score was higher. The same applies to annual fees. Fewer of the newer credit cards demand these, so you could end up saving even more by cancelling your older ones.
Reasons not to cancel your credit cards
Emergency funds when you need them
When times are tight, the best place to go is your savings. But if you don’t have much, a credit card can help you get through a tough patch. Tucking one or two old cards away for a rainy day can be a good idea.
Just be aware that some providers will charge dormancy fees if you don’t use your card for certain period of time. A small purchase now and then will prevent this from happening.
Rebuilding your credit score
If you think your present circumstances and credit score make it unlikely you would be accepted for new cards, it can be a good idea to hang on to some of your existing card. By spending on your credit cards and repaying the balances in full every month, you can not only enjoy interest-free credit but you can improve the rating lenders give you.
That’s because a long-running card with a positive history can improve your credit score. Note also that switching cards too often will result in more searches on your credit report. These are recorded and can acts as a red flag to lenders when then decide whether or not to issue you a new card.
Deals for existing customers
While deals for new customers will always be more enticing, existing customers are also rewarded by many companies. If your chance of getting a new card is low, investigate existing deals you might be eligible for.
Other cards, like those associated with individual retailers, offer points, cashback and other loyalty-based rewards to encourage you to keep – and use – your card.
If you choose to cancel your card, be thorough
Cutting up your card only stops you using it. It doesn’t close your account. So if you want to cancel your credit card, be sure to call your provider and ask them to do it for you.
Ensure you have a zero balance on each card before cancelling, ask for a final statement and proof of cancellation and follow up afterwards to make sure.
Also, get in the habit of checking your credit report. This way you can be certain that nothing further is done on the account and you avoid nasty surprises happening to your credit score.