Dear Liz: I have too many credit cards that I opened to get frequent flier points. I understand that closing a credit card lowers your credit scores. How long does the ding last? How long should I wait before closing another card? Do you have any other advice on this subject? You probably have discussed this in previous columns but it might be worth repeating.
Answer: If you have a lot of cards, closing a few is unlikely to significantly hurt your credit scores as long as you do so strategically.
A big chunk of your credit scores is determined by how much of your available credit you’re using. You want a large gap between the amounts you charge and your credit limits. Try to keep open the cards with the highest credit limits. If you have multiple cards with the same issuer, ask if the credit limit from a card you’re closing can be transferred to one you’re keeping.
Even if your scores do dip because of a closure, the effect is likely to be short-lived if you continue using credit responsibly.
Ideally, you would review your portfolio of credit cards every year or so to determine which cards to keep and which to close. Travel rewards cards typically have annual fees, sometimes significant ones, so you’ll want to make sure every card you have is at least paying for itself in annual rewards and benefits.
Also consider the mental load involved. As you age, you may find it more difficult to monitor multiple accounts and keep track of all the details. You may want to simplify your finances by winnowing your cards down to just one or two. At that point, keeping your finances manageable will be more important than maintaining the highest possible credit scores.
I started simplifying my finances when I retired about 4 years ago. My wife and I now use 1 credit card that gives us cash back for all purchases. I usually cash out at the first of the year when expenses from the holidays are higher. We don’t use store cards unless it offers a large discount and have closed most of them.
One thing that has helped me is to put any automatic payments on a separate card than what we use on a daily basis. I use one associated with my credit union checking account. This is a good way to keep track of those recurring payments that sometimes increase or continue even though you’re not using them. It’s also easier to identify them as they are not buried amongst everyday purchases.