When the term ‘plastic fantastic’ came about in the 80s, few could have imagined just how reliant we would become on credit cards.
Today, there are 32.3 million credit card holders in the UK. These individuals owe a total of £70.8 billion, which equates to a £2,604 credit card debt for every single household.
Whilst convenient, you may be wondering whether you should close your credit cards. In this blog, we’re going to answer all your credit card closure questions: from “should I keep my oldest credit card account?” and “how do you cancel a credit card?”.
“Should I close my credit cards?”
There are many circumstances where it makes sense to close a credit card, including:
• If you continually rack up credit card debt that you don’t keep up on repayments – in this instance it may make sense to shift the debts to a personal loan, which generally has a far lower interest rate than a credit card. A personal loan would also remove the temptation to repay an amount, only to use the credit card again.
• Where you’re paying an annual fee and you don’t make use of the premium services it covers (such as insurance and roadside breakdown cover).
• When you need to have simpler finances (for example, if you have multiple credit cards open with different balances, it may make sense to only have a single card with the best interest rate).
If you’re paying hand over fist on interest rate fees you should consider moving your balances to a single credit card under a 0% balance transfer deal. These offers provide you with a period of being interest free – over which time all your repayments will go towards reducing the debt.
“Should I keep my oldest credit card account?”
You may have heard that closing your oldest credit card can hurt your credit rating. But it’s simply not true to say that you should never close this account. While it’s a fact that a long-standing credit account, which has been kept up-to-date with repayments, can help your credit rating, it will remain on your credit history even if you close it.
“Should I cancel my unused credit card?”
If you don’t use your credit card, and know that you won’t use it in the near future, you should consider cancelling it for the following reasons:
• It reduces the risk of fraud
• It improves the image that lenders have of you – especially if you’ve moved from having many credit cards with a very high total credit limit
However, you should also be aware that showing that you can responsibly manage multiple credit accounts is key to maintaining a good credit score. If you don’t have many other credit products (such as a loan, overdraft and mortgage), it may be advisable to keep your credit card open.
Another factor to consider is that a zero balance on a credit card that is then closed, means that your overall credit utilization will go up.
For example, if you have two credit cards, one with a £500 balance and a £500 limit, and another with a zero balance and a £500 limit, closing the latter will result in your overall credit utilization shooting up from 50% to 100%. This would mean that you are ‘maxed out’. As a general rule of thumb, you should aim to use less than 30% of all available credit.
“How do you cancel a credit card?”
If you’ve decided that closing a credit card is the right move, then you can cancel the credit card by contacting the lender.
If you have a balance on your credit card, you’re still allowed to cut the card up while repaying the balance (this can help if you can’t control yourself from making impulse purchases).
If you’re concerned that your debt problems are spiralling out of control, and are unsure as to the best move to make, you should speak with an impartial debt advice agency, who’ll be able to provide you with tailored advice based on your circumstances.