Wait!! Don’t cancel that old credit card just yet.
The issue of cancelling credit cards that you are not using (or should not be using) is a complicated one.
The advantage of cancelling old cards is that you are not tempted to use them and if you are going to do some type of financing in the near future (mortgage, loan, etc.) the amount of available credit on those cards does not form part of your debt ratio. (Will blog on this one later).
The disadvatage is that your credit score, which is created from several factors, can take a hit. One of those factors is how long you have had credit. The longer, the stronger your score. So, let’s say you have a Sears card that you have had for 20 years (because everyone seems to have had a Sears card starting out with credit), if you cancel that card, you have lost that “length” of credit and your credit score can decrease.
That decrease may or may not affect you depending upon your score to begin with and how long before you apply for new credit, but it is something to be aware of.
A better option – don’t cancel it. Drop the limit an then tuck it away, or, better yet, freeze it in a block of water to avoid impulsively using it. (grin)
The whole credit score system is a bit of a grey area. Watch for future posts as we work through some of the pitfalls, myths and confusion.
As always, if you need specific guidance, ask Dr. Debt at info@drdebt.ca or visit our website for more information.
