Some of my book readers have been asking me if they should close out their extra credit cards. They may have a Visa, MasterCard, Sears, Target, Macys, Chevron, and Walmart card. They do not need all of those cards, because Visa and MasterCard will handle it all.
But my answer is NO and here’s why.
By closing the cards you already have open, you risk losing credit points.
You gain points for having a long history of credit. By closing old cards, you could lower your average length of credit.
You gain points for using a small portion of your available credit. This is calculated in two ways:
1) A low balance-to-limit ratio on an individual card.
2) A low balance-to-available credit ratio on all your cards.
If you close out all your store cards that you don’t need, you could hurt your score per #2 above. Your balance-to-available credit ratio could go up (depending on your remaining credit).
So, in general, if you have extra cards you don’t need, let them set open and unused. That way, you won’t risk losing points.
What If You Only Have Three Credit Cards?
If you only have two or three credit cards, that is enough and you do not need to seek out more. If you have two credit cards, plus one other trade line on your credit report, such as an auto loan or student loan, then that’s perfect. You have three accounts showing on your credit report, which is what you want for a conventional mortgage loan.
Best practice for a high credit score is to keep your balance-to-limit ratio low on all your credit cards. I suggest keeping it at 30% or less. Never go over 50%, because that will dock points. And never, ever max out your cards!
Thank you for reading this post. Feel free to pass it on to others via social media, because a lot of folks are using too much credit without realizing it is hurting their scores.