Closing a card can be tempting, but there are negative implications to consider. Here, a financial expert advises on what to do instead.

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In the satisfying rush of a cleaning spree, cancelling an old credit card can feel like a simple act of tidying your finances. And if you're prone to over-spending, having one fewer open account may help limit temptation. But before you hop aboard the cancelling train, pause to consider the implications it might have on your credit score.

"Closing an account decreases the amount of credit in your name, which means that whatever you've charged and continue to charge will make up a higher percentage of the total," says Benét Wilson, credit-cards editor at The Points Guy. This number is often referred to as your credit utilization rate, and when it spikes, your score can drop; a lower score makes it harder to get approved for a mortgage, lease a car, or rent an apartment, among other things. The effect is even more pronounced when you close a high-limit card (since that will pull the full large value of its limit from your available credit), adds WalletHub analyst Jill Gonzalez. And cancelling very old cards can do more significant damage by lowering the average age of your accounts—a factor in your overall credit health. Because of these risks, we suggest tabling the cancelling if you can, and doing one of the below instead.

Stow the card safely.

If it's just a card that you don't want to use again—maybe it has a high interest rate, and you tend to run a balance from month to month—and it doesn't have any annual or miscellaneous fees, your best bet is to put it in the back of a drawer or other secure spot, Wilson says. And if you'd really like to ensure no more charges are made, you can simply cut it up, Gonzalez says, and remove it from any digital-pay accounts like Apple Pay or PayPal. Of course, if it has a balance at the time when you decide to stop using it, remember to pay it off (or at least contribute the minimum each month); just because it's out of sight does not mean you're off the hook—that is, until the balance is at zero, at which point, you're free to forget about it.

Inquire with your bank.

When you make a call to ask about getting rid of a credit card, the issuer may offer you a retention bonus, since it benefits them to keep the account active. "For example, if you're calling AMEX to cancel your AMEX Gold," Wilson says, "the teller might say, 'Well, we'd like to do everything in our power to keep you, so how about we offer you 20,000 membership rewards points?'" In that case, you'd take the perk and then put the card in a safe place, as mentioned above.

Downgrade the card.

If the card you'd like to cancel has a high fee (or fees), the story changes a bit. In this case, it's smart to see if there's a way you can downgrade to a no-fee card, so that you're not continuing to pay for an account that you're no longer using. "If you have a Capital One Venture Rewards card, you might ask about switching to the no-fee Capital One VentureOne card," Wilson says. "You'd earn fewer miles with it, and it doesn't have as many perks, but if you're not using it, those things don't matter anyway.” In this case, you'd be able to stop paying a fee, but your Capital One account would stay open and the original card would remain a part of your credit history—which means you wouldn't face the potential ding to your score. Chase, AMEX, and many other issuing banks allow for similar downgrading in most situations.

Martha Stewart Living, June 2020

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