Welcome to your “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers. You can learn how to send in a question of your own below.
If you’re not typically a video watcher, give it a try. These videos are short and painless, and you’ll learn something valuable. But if you can’t deal with video, no problem: Just scroll down this page for the full transcript of the video, as well as some reader resources.
Today’s question is about credit cards; specifically, whether you should formally cancel unused plastic. This may seem obvious: Why not cancel a card you’re not using? But the truth is not as clear-cut as it seems.
Check out the following video to understand why.
For more information on this topic, check out “Ask Stacy: Should I Cancel My Unused Credit Cards?” and “The 10 Most Common Credit Card Sins.” You can also go to the search at the top of this page, put in the words “credit card” and find plenty of information on just about everything relating to this topic.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, everyone, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer’s brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.
Today’s question is from Richard:
I would like to close one of my credit card accounts because of the annual fee. I never use the account. How can I close the credit card without damaging my score?
Personally, I don’t cancel unused credit cards unless — like Richard’s card — they come with an annual fee. You shouldn’t cancel them either.
If you decide to stop using a credit card and there’s no fee involved, just cut it up and forget about it. If you have an annual fee and you no longer want the card, you should cancel it. But what about Richard’s concern? Will it damage your credit if you close the account?
Part of your credit score is based on the length of your credit history. For example, I’ve had one credit card for 25 years. A long credit history improves my credit score. When you close an account, it won’t immediately impact your history: Closed accounts in good standing can remain on your credit history for 10 years.
Nonetheless, a long history is a good history. So, that’s the reason I advise leaving accounts open versus formally closing them.
Now, back to Richard. He’s right not to pay an annual fee on a card he’s not using. But before ditching it, one thing he could try is to call the issuer and say, “I’m thinking of closing this account, how about you waive the annual fee?” Sometimes they’ll do this, sometimes they won’t. If they do waive the fee, problem solved — at least until next year.
If that doesn’t work and it’s time to close the account, don’t freak out about it hurting your credit history. If you’ve got great credit, it’s not going to do much damage. That’s why we don’t pay an annual fee just to maintain a card. How do you correctly close a credit card account? You make sure the card’s totally paid off, then write a letter to the credit card company. Call the number on the back of the card and ask them where to send the letter.
If you decide to close the account by simply talking to a customer service representative instead of sending a letter, make sure you take copious notes. When did you call? What did you say? What did they say? Write it all down.
After your account is closed, let a few weeks go by, then check your credit history. Make sure the account says “closed by consumer.” That notation will prevent it from being interpreted as a negative on your credit report.
In summary, do one of the following:
- Leave credit accounts open if they don’t cost you anything.
- If the lender charges an annual fee, try to get the fee waived. If that doesn’t work, close the account properly and don’t worry about it.
One exception: If you’re about to apply for a mortgage or other important credit, don’t close the card or do anything else that might even slightly affect your credit history.
I hope that answers your question, Richard. Have a super-profitable day and meet me right here next time!
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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