We explain the pros and cons of cutting up the cards sitting unused in your wallet.
Many of us, lured by 0% balance transfers and new customer deals, will have a variety of credit cards filling the compartments of our wallets. But how many of these are actually used? It may seem as long you don’t have any outstanding balances then no harm done, but with credit it’s always best to be familiar with the finer details.
How many unused cards do you have?
One credit card for emergencies is always useful. Five unused cards are another matter. Should you apply for credit in the future a potential lender may question your need for any more. The flipside of this view is that by cancelling those redundant cards you reduce the amount by which you could be indebted, making yourself a more attractive proposition to a creditor.
Are you good with your money?
For some, paying off the balance on a credit card is a hard-won achievement. When dealing with debt ending your reliance on credit is an important step to re-gaining financial control and in these situations not cancelling an unused card leaves temptation in your path. Cancelling your cards can be hugely satisfying and may be the best way to prevent difficulties reoccurring.
Alternatively, if you struggled to manage your spending your credit rating may have been damaged in the preceding months. A poor rating can affect your ability to gain credit in the future and in extreme cases you may be forced to turn to providers who charge exorbitant interest rates for “high risk” customers. In this case, if you believe you may need access to credit again in the near future, keeping your current card with its relatively low APR is something to consider.
Identity theft
A further consideration is the risk of identity theft. There is a danger with unused cards that you simply forget about them. When cards expire many companies automatically re-issue them. If you have moved address and failed to notify your creditor, the re-issued card may be delivered into the wrong hands. In addition, an unused card is unlikely to generate monthly statements and so detection of mi-use may come many months later.
New customer deals
Many of the best deals on credit cards are for new customers. By cancelling an unused card you effectively become a new customer at your old bank. However, it is at the banks discretion as to when you are to be classed as a new customer and it may be as long as 18 months before you become eligible for such deals.
On the other hand, many banks are increasingly placing an emphasis on the retention of existing customers. It is likely, when you contact your provider to cancel you card, you will be offered a number of incentives to try and change your mind. If your intention is to get a better deal then great but be wary of suggesting you may leave then failing to follow through. Your provider may increase the interest rate on your card to maximise the amount they make before you depart.
A few golden rules for cancelling
- Don't cancel just before you apply for a new source of credit as having a long, stable credit history makes for a good credit rating.
- Don't simply cut up the card. Contact your provider to cancel and ask for confirmation in writing.
- Request your provider informs the credit rating agencies that the card was cancelled at your request.
- Make sure you have paid off any outstanding balance in full before cancelling.
Some cards are better to keep than others. Always consider the type of card and how likely you are to need, and be able to access, credit in the future.
Compare Credit Cards via money.co.uk
