A 65-year-old single woman, let’s call her Too Many, is seeking financial guidance on managing her extensive collection of credit cards. She currently holds approximately 25 cards, a mix of store cards, Visa, and Mastercard, primarily for rewards and discounts. While she diligently pays off her balances monthly, she’s overwhelmed by the sheer number and is considering downsizing to just two cards.
Too Many plans to work for another two to five years and owns her home outright. She has no other debts. Her primary concern is the potential impact on her credit score from closing so many accounts.
Financial experts suggest that while a credit score may temporarily decrease, the long-term benefits of simplification outweigh this risk, especially given her current financial stability. Closing several cards at once might be preferable to a gradual approach, considering her lack of future borrowing plans.
Experts recommend prioritizing the closure of cards with the shortest credit history, those with high annual fees (unless they offer significant rewards), cards with overlapping benefits, and store cards, which often carry high interest rates. Maintaining a credit utilization ratio between 25% and 30% is generally recommended, but this can be temporarily disregarded during the card closure process.
The major credit bureaus, including Equifax (EFX), Transunion (TRU), and Experian (UK:EXPN), use different scoring models. A FICO score, for instance, weighs payment history most heavily. While Experian notes that maintaining multiple accounts can demonstrate borrowing reliability, the risks of fraud associated with a large number of cards are significant.
Closing credit cards requires notifying the issuer, either by phone or in writing, and ensuring all balances are paid before closure. Simply cutting up the cards or ceasing use is insufficient and could lead to missed payments. Subscribers should also review recurring payments to prevent disruptions.
Although a temporary decrease in credit score is likely, experts believe the long-term benefits of reduced risk and simplified finances outweigh this short-term impact. This is especially true for Too Many, given her financial stability and lack of future borrowing plans. The reduction in the risk of fraud is also a significant consideration.
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