According to the Consumer Financial Protection Bureau in its latest semi-annual report, credit card debt has risen again after falling temporarily during the COVID-19 lockdowns.
Americans use plastic to fund more and more purchases, causing you to feel overwhelmed by the number of credit cards you have and even worried that the number of cards you have may negatively impact your credit score.
There are several factors to consider before you decide to close a credit card account.
According to credit experts, Americans have an average of three credit cards and 2.4 retail cards. But how much credit is too much? It depends on your spending habits.
Consumers like the rewards perks that come with certain accounts. Having several cards can help them achieve greater rewards. Others prefer the simplicity of having fewer cards.
In reality, there is no ideal number of credit cards. If you have trouble paying your bills on time, your spending habits should determine how many accounts you hold. Ultimately, your credit score is influenced more by your credit habits than the number of cards you have.
THINGS TO CONSIDER BEFORE CANCELING A CREDIT CARD
If you want to reduce the number of credit cards you have, here are five factors to consider.
- If you close accounts, your credit score may suffer. The reason is that closing a credit card reduces your available credit limit. A reduction in available credit can increase your credit utilization ratio, which plays an important role in your credit score. The utilization ratio is the ratio of your total credit card balance to your total credit limit on all your open credit cards. The closer this percentage is to zero, the more impact it has on your credit score. Closing an account may cause your utilization ratio to increase, damaging your credit score.
- The average age of your credit accounts is also reduced when you close a credit card. Basically, the longer your credit history, the better your credit score. If you plan on applying for new credit in the next three to six months, keep your credit card accounts open until the transaction is complete.
- Even if your credit scores will likely dip, you might want to close the accounts if you are experiencing difficulty paying your existing debts.
- There are also some cards that have hefty annual fees regardless of whether you use them. In these cases, switching to a no- or low-annual-fee credit card is worth the hit to your credit.
- Monitoring your credit is crucial. FICO® Scores can be tracked in real-time with real-time credit monitoring. Additionally, you will be alerted to any suspicious activity, such as new credit inquiries, new loans, and delinquent accounts reported in your name.
Keep in mind that the number of cards you have does not directly affect your score. Having more credit cards can improve your credit score if you use less of your available credit. However, if having many cards complicates your life and you end up paying late occasionally, that can impact your score.
Is your personal information on the dark web? Make sure your identity isn’t at risk!