Credit Cards You Do Not Want to Cancel
Thursday, April 23rd, 2009These days many credit card customers are cancelling credit cards which they are able to pay off with what cash they can 
pull together. This is not a bad idea as a debt management and reduction strategy, but there are some considerations that you will want to think about before you take this step. There are some cards that you might be better off keeping active while maintaining responsible financial activity:
Your primary bank card. You should consider keeping the credit card that is from the bank at which you have your checking and savings. The reason is that often, you get better rates on these types of cards. Plus, if it is tied into your checking account as an overdraft option, you will no longer have the benefit of that feature.
Best rates. This might be the card mentioned above. But there are cards with great rates out there, even with the recent pull-back by the credit card issuers. In any case, the lower rates allow you to keep more of your hard-earned money. It would be worth prioritizing your cards based on these rates and see which one is the best.
Best payment history. In order to preserve your credit history and rating or to improve them, keep the card that you have a better track record of maintaining. The fact that account payment history represents 35% of your FICO score should tell you that this one is important to keep. It will help you keep your score low. The other factor that you should be aware of is credit history length which is 15% of your FICO score.
Highest credit limit. This works as part of an overall plan to keep credit card usage under control. If you are good at paying cash using a debit card or checks for almost all of your purchases, then this credit card would be good to hang onto on a long-term basis.
The negative part of closing a credit card account is that your credit score takes a hit, so if you can keep a few opened, then you would avoid this pitfall all together.One other tip that might help you is that if you feel like you need to cancel and close a credit card account, see if you can do a balance transfer first to a lower interest rate card with a low transfer fee.
You must have a discussion about this strategy because you do not want to get into a position where credit cards are controlling your life, and if they have become a controlling factor, then you would do well in closing them.
If, on the other hand, if you are good at managing your credit card accounts, then by all means, use these principles in order to help get the best rates, etc. This will fit an overall strategy of micro-managing your debt and credit.
This is the good part about owning credit cards: they can and do help you if you are able to use them responsibly and keep yourself out of trouble with them, but if not then this advice is less applicable to you.
Cancelling and closing accounts has finality to it which you might want to keep in mind. Chances are high that you will not be able to do business with that specific card issuer any longer. This might not seem like a major issue, but if in the future you need a mortgage and the bank which is offering the best rates is one in which you previously had an account that you closed, then you might miss out because of your past actions. A little clear-headed thinking about this topic and all of the surrounding issues can help you make a wise choice regarding your finances.
