Old Credit Cards

It's funny, people always ask this the same way: “Just a quick one. Should I cancel my old credit cards once I'm not using them, or is it better to keep them?” It's testament to the thankfully increasing savviness against credit card companies that people ask this question. The answer, in a nutshell is yes, do cancel them. However, there's a strategy for choosing which cards you should cancel and which to keep.

• What are the benefits?
• Cutting up isn't cancelling
• Should I keep any cards?
• Any other issues?
• Related Articles / Discuss

Cancelling cards - Cut and dried?

What are the benefits of cancelling a card?

There are two main benefits, both of which are about maintaining your ability to access the market's best deals.

• Improved Credit Score. When you cancel your cards, by definition you have less available credit. This is a boost to your credit score as it means potential over-indebtedness is less of a problem. For this reason alone cancelling your credit cards is worthwhile (full Credit Scoring article).

• Re-eligibility for new customer offers. Without question the very best deals on the market are only available to new cardholders. By cancelling existing credit cards, after a time you should become re-eligible to be a ‘new cardholder'. There are no hard-and-fast rules with this. It's purely up to the card company and you have no rights. However, after about 18 months it usually works.

Cutting up a card isn't cancelling

Don't confuse cutting up a credit card with cancelling it. Cutting it up simply stops you using it. Instead call up the card company and tell them you want to cancel. If possible request confirmation of cancellation in writing, as sometimes they don't action it.

Funnily enough the mere act of attempting to cancel may be beneficial. Often when you do this the credit card company will try and tempt you to stay with some form of special offer deal. It's always worth examining, especially for those still needing to borrow.

Yet, even once you've cancelled a card, it doesn't mean the account is closed. The card company will leave it dormant but open for a while in case any payments you've made still need to come through. It's worth making a call a few months later to double check it's done and dusted. In other words, just to make things difficult, cutting up doesn't mean cancelling, and cancelling doesn't always mean closure.

Should I keep any credit cards at all?

You may be surprised to hear me answer ‘yes'. First of all there is free cash to be had, either from cashback cards or for the more money-disciplined the Free Cash Technique.

However, cards are also a useful emergency fund. Of course if you've sorted your Budget, then you should have a nice cash fund in case of emergencies, which is great. Most of us don't though.

Old style money logic would suggest it is important that everyone has a ‘cash emergency fund'. While of course this is a desired status, actually for many people it is poor MoneySaving logic. The reason is simple; if you have debts and savings, the interest paid on savings is usually far less than interest charged on borrowing, so paying off debts with savings makes sense.

After paying them off keep one or two cards and lock them away strictly in case of a substantial emergency. If no emergency happens you're quids in and can then start a cash emergency fund. If it does, use the cards and you're no worse off than when you started (especially if you follow the various interest-reducing methods on the site). You'll have saved substantial interest costs in the meantime.

Are there any cards better for keeping than others?

In the old days special interest rate offers were only on offer as new customer sign-up incentives. Now the market is ferociously competitive, so the big players fight hard to retain existing customers. Whilst the very best deals are still reserved for new customers, existing customers can now access good deals too.

Keeping these cards is a good safety net in case of credit score problems. It means if you start getting turned down for cheap credit you have these cards there.

Most of the deals on offer are reserved for balance transfers (debt shifted to the card from another card) rather than for existing debts on the card. This means it's always useful to keep two cards so you can shift debt from one to another to access the cheap rates.

Two cards deserve a special ‘keep ‘em' mention because their deals for existing customers are static and published, so you know what you're getting. If you pay a fee, Barclaycard will allow you to transfer debt to it at 6.9% and this rate lasts until the entire debt you've moved over is paid off. Egg has promised to offer existing cardholders 0% for 5 months each year on the anniversary of opening, although you will pay a fee of 2%.

Both of these offers have substantial catches, yet there's a work-around with them (full details in the Barclaycard or Egg existing customer loophole articles). It's important to note neither of these offers are guaranteed to last forever. The scale of these providers means customer retention is crucial though, so they're likely to continue with existing-customer offers.

Anything else worth thinking about

The key to the above 'what cards to key' is talking about the cards which can help keep your interest rates perpetually cheap. However assuming you're never planning to use credit cards to borrow, it's a different range you should have.

The following articles detail which card is best for each type of purchase: Best Card for Spending, Best Balance Transfers, Best Cashback Card, Best Card for Overseas Spending, and the cards to use to make free cash.