I am 62 and about to retire. I have a credit score of 800 and have roughly 20 credit cards with balances on only three (which I pay off every month). I want to start closing some of the accounts so I don’t have to keep up with them. What is the best way to do this without hurting my credit score?
— Holding the High Score
Dear High Score,
Kudos for taking the time to learn how this money move could impact your overall financial situation! It makes sense that you want to simplify your money management by closing accounts you’re not using, and it’s wise to learn more about it before making the move.
The short answer: With your excellent credit score, it’s unlikely canceling unused credit cards will have a significant impact.
People generally have two major concerns about canceling credit cards:
- It reduces your total available credit while any balance you carry remains the same, so it looks like your credit utilization has gone up.
- The account is no longer part of your credit history, so your history could be shorter.
Both of these issues have a little bit of truth and a little bit of myth to them.
It’s true closing a card reduces your available credit and increases your apparent utilization — but only temporarily. Reporting agencies pretty quickly recognize you’ve closed an account, rather than increased your spending, and your score will stabilize after a month or two. Any dip in your credit would be small, anyway; it probably wouldn’t even push your score out of the “excellent” level.
Because your score could take a small dip for a couple of months, avoid closing any credit cards right now if you’re applying for a mortgage. That process takes a couple of months, and any change to your score in that time could throw your offer out of whack.
It’s also true that closing an old account (if your other accounts are newer) will shorten your credit history — but that doesn’t happen immediately. Your old account will remain part of your credit report for 10 years, so it won’t look to creditors like you’ve just opened your first credit card last week. You’ll have that 10 years to continue building credit with the cards you still use, mortgage or other loan payments, and any other reported financial behavior.
To close your cards while tending to your credit score:
- Use up any rewards you’ve accumulated first! Take on the chore of signing into all of your accounts one last time to see if you have any cash back or other rewards available so you can take advantage of them before closing the cards.
- Close the accounts slowly, one by one, every couple of months. Start with any cards that have an annual fee so you can eliminate those expenses.
- Keep an eye on your credit report as you close cards to see how it impacts your score. You can follow along through an app like Credit Karma, which will alert you when a change has been reported to Equifax and TransUnion. If your score takes an uncomfortable dip, wait until it recovers to close the next card.
Dana Miranda is a Certified Educator in Personal Finance® and contributor to The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.