Should you close your credit card account or keep it open?

Do you have too many credit cards and are ready to give some up? You might want to think again before closing that account. While you may wish to follow your impulse to close a credit card account if you are struggling with debt, and believe that an open credit card account will only tempt you to spend more. There are good reasons for keeping those credit lines open.

Let’s consider the reasons for keeping a credit card account open and why you may want to close one.

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Reason to close: You are too tempted to spend

If an open credit line on a credit card account makes you spend beyond your means, you may wish to close the account rather than add to your debt troubles.

“The only good reason for someone to close a credit card account is if the cardholder simply doesn't have the discipline to use the card properly. Meaning, if a cardholder cannot avoid excessive spending, then they should probably consider closing it,” says John Ulzheimer, a credit expert and author. He formerly worked for FICO, Equifax, and Credit.com.

Assess your spending on the credit card account you are thinking about closing. How much do you make and how much are you continuing to charge each month on the account? The goal is to turn off spending and only focus on paying down the account.

Reason to keep: You’re protected against fraud

A credit card is a safe way to pay for items online and in-person. If a thief gets your number, you’re protected.

“The Fair Credit Billing Act limits your liability to $50 for credit card fraud and the four credit card networks, Amex, Visa, MasterCard, Discover, all have zero fraud liability policies,” Ulzheimer says.

If a thief rings up a fraudulent charge on your credit card, reach out to your credit card issuer and report the charge. The charge will be removed from your account, and in addition, you will be given a new card.

Reason to keep: Closing will hurt your credit score

Your available credit limits are counted in your credit score and used to determine your revolving utilization, which calculates how much of your credit card limits you are using. As such, empty, unused credit card limits can help your credit score. Closing an unused or mostly unused card will lower your total available credit and by extension, your credit score. So think twice about closing an old account that you may not use much.

“If you close credit cards they will be reported as such on your credit reports. That means you will lose the value of the unused credit limit in your credit scores. That can result in a spike in your revolving utilization percentage and, as such, a lower score,” Ulzheimer says.

Reason to keep: Closing is a permanent decision

Once you close a credit card, you can’t take it back. It seems obvious, but you won’t be able to use that card again, and you’ll have to go through the credit application process to get a new card which might not have as favorable terms.

“Just because you don't need that card today certainly doesn't mean you won't need that card tomorrow or in the future. If you close a card, that's it...it's closed,” Ulzheimer says. “You can’t just change your mind in a week or a month and ask the card issuer to change their mind because you've reconsidered.”

And what about an emergency? A good strategy is to keep a credit card open in case an emergency or unexpected expense comes up. You never know when you may need a few hundred dollars fast.

Reason to keep: Applying for a new credit card will affect your credit score

There’s no way around this. Replacing a closed credit card account will hurt your credit.

“You'll have to reapply for a new card, which means a new credit inquiry and a newly opened account added to your credit reports...which can lower your scores,” Ulzheimer says.“And there's no guarantee the card issuer will approve your request or even assign an equal credit limit if they do approve your request.”

Bottom Line

So hang on to all your old credit cards and make purchases from time to time that you promptly pay off. You want to keep the cards active but you don’t want to acquire debt.

“Use them all from time to time so the card issuers don't close them or reduce your credit limits due to the inactivity,” Ulzheimer says.

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