To ditch old credit cards, or not ditch old credit cards? That is the question... The answer depends on which cards you have and what you might need credit for in the future. This is a Q&A guide on what to do with your dusty plastic.
It's difficult to know when you should cancel a card, and when you should keep one. It'll not only impact on the amount of credit available to you, but also on your credit rating. We list the pros & cons of both, and look at reasons to go and reasons to keep.
To ditch, or not ditch old credit cards? The answer depends on which cards you have and what you might need credit for in the future.
It'll not only impact on the amount of credit available to you, but also on your credit rating. This is a Q&A guide on what to do with your dusty plastic, including the pros & cons of keeping and cancelling.
Why not just keep them all?
Cancelling unused cards has two main benefits - especially if you think you'll need to apply and be accepted for the market's best credit card deals in future.
This also applies to a lesser extent if you're going to apply for a new mortgage or lump sum loan somewhere down the line.
Decreased fraud risk
Jettisoning old cards helps in that old, unchecked cards are a fraud risk (if you don't check them, you won't notice if they're being used fraudulently. It's also good to close them as it's one less thing to change the address on if you move house - old addresses on your credit report can worry lenders.
Regaining access to new customer offers
Instead of inwardly fuming, by cancelling existing credit cards you can regenerate yourself, Doctor Who-style, as a 'new customer'.
This is because once you've left, after a while the lender will want to tempt you back. The length of time you have to wait in order to qualify for the hot intro deals is up to individual card companies - there's no golden rule here, but we've asked the big credit card providers for a rough guide to their policy (don't take these as gospel):
How long until you're a 'new customer'
American Express: Six months
Barclaycard: Six months
Capital One: 30 days after last statement
Halifax: 60 days after cancelling account
HSBC: Six months
Lloyds: 60 days after cancelling account
Nationwide: 12 months
NatWest / RBS: Eight months
Santander: Six months
Is it worth keeping any old cards?
Despite the boons available from cancelling, this isn't a clear-cut issue. Hanging on to plastic you aren't making full use of right now can have its advantages too.
Ideally, we'd all like a cushy savings pot to fall back on in case there's an unexpected need for dough. Yet this isn't possible for everyone, and if you have debts it makes little MoneySaving sense.
The reason is simple. If you have both debts and savings, the interest paid on savings is usually far less than interest charged on borrowing, so paying off debts with savings boosts the cash you have (read the Repay Debts With Savings guide).
Once done, lock one or two empty cards away strictly in case of a big emergency. If nothing happens, you're quids in and can rebuild your savings. If it does, use the cards. You're no worse off than at the start, and you'll have paid far less interest in the meantime.
There's a small chance the card provider may cancel the card if you never use it or your direct debit may lapse if nothing's ever paid on it. So it may be worth buying something small on the card every few months, and paying it off in full to avoid interest.
Existing customer deals
Sometimes lenders open their big hearts and offer cardholders a stunning deal. Well, the second part's true - the reason's that they want you to use the card more so you boost their profits (see the best cards to keep).
It's a tough balance. These deals rarely match the best for new customers, but the added bonus is they don't need a credit check. Weigh up your chance of getting new cards. Have you missed payments or been turned down lately?
Extra protection when you spend
If you have no other credit cards, it's worth knowing that when you buy something costing £100+ (and under £30,000) on one, the card company is equally liable with the retailer if there's a problem, so hanging onto yours may give useful protection. Full details in the Section 75 guide.
Get cashback and rewards
Check if your card offers cashback or rewards - where you get paid cash or points for spending. This can be a nice bonus, but you must always repay in full to avoid being hit with interest. Read the full Cashback Cards guide.
What does cancelling a card do for my credit rating?
There is no definitive answer to this. As we say right up-front in the credit scoring guide, different lenders are looking for different people.
For some lenders, unused credit will be a complete turn-off - they will be apprehensive that if you had a spare £15,000, say, of unused credit, you could go out and spend it in one afternoon, and thus decrease your likelihood of being able to pay them back, if they granted you a card.
However, some lenders will be looking for your credit utilisation - this is a fancy way of saying how much of the credit available to you are you using. It's best to aim for a figure around 25% or less (and it's best if it's not all concentrated on one card).
Lenders don't want your utilisation ratio to be 100% (in simple terms, you're maxed out). It's a sign you're desperate for credit, and that you can't pay up. But they also don't want you to be using no credit - to have a utilisation ratio of 0%. Lenders when they credit check you are looking for a repayment history, and if you're not using your cards, they don't have it.
So - there's no definitive answer as to whether you should close down your old cards, because all lenders are different. Look to strike a happy medium - if you've lots and lots of unused credit, close some cards down, but don't close 'em all - and above all, don't max out.
A word of warning: if you have one old credit card, and several new ones, don't close down the old one. Lenders like you to have long financial relationships - it shows that you have stable finances. Close the long-held card and you'll take a credit score hit.
How do I cancel a card properly?
There is a big confusion here, and the only way to dispel it is to shout loud...
Cutting up a card is NOT the same as cancelling!
Snipping your plastic in half simply stops you using it, but has no positive impact for you as a customer. Instead call up the card company and tell it you want to cancel the account. If possible, ask for confirmation in writing, as sometimes firms don't action it.
Even once you've cancelled it doesn't mean the account is closed. It'll often be left open for a bit in case any payments still need to come through, so always double-check your final statement to ensure everything's gone through. Then check your credit report 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.
Funnily enough the mere attempt to cancel may reap rewards. Often when you do this, the credit card company will try to tempt you to stay with some form of special offer deal. It's always worth examining, especially for those still needing to borrow.
Are any cards better to keep than others?
Whilst the very best deals are still reserved for new customers, existing customers can access good deals too. Some do this more than others. so it's worth knowing the right cards to keep your claws on.
Most of the deals on offer are reserved for balance transfers (debt shifted to the card from another card). To take full advantage, it's useful to keep two cards, so you can shift debt away from the card then back again to bag the cheap rates.
But some lenders do offer decent deals for existing customers - if you ask! These deals are ones we've heard anecdotal evidence of MoneySavers getting from their lender - so all are rough and not guaranteed. Let us know about any others you've had in the Existing Customer Offers discussion.
Existing customer balance transfer offers
Barclaycard: 0% for 12 months
Halifax: c.0% for 27 months for a 3% fee OR 6.95% life of balance
NatWest: c.0% for 9 months for a 3% fee
Tesco: c.7.9% life of balance, no fee OR 1.9% for 6 months (2.5% fee)
Virgin Money: c.0% for 12 months for a 2% fee OR 6.9% until repaid (2.98% fee)
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, then you still have these cards there. The scale of these providers means they need to hold onto customers, so while it's never guaranteed that you'll be blessed with an offer, it's likely they'll continue.