Have you recently paid off a credit card? Do you feel like you have too many? Are you considering closing one or more cards? You may want to think twice before closing your credit card accounts. While cutting back can help you stay out of debt, it could also damage your credit history if you’re not careful. Here are some of the pros and cons that you should consider before closing any credit card:

Pros of Closing a Credit Card

The most obvious reason for closing a credit card is to eliminate the available credit limit. When you do that, you take away your ability to over-spend on that card and get into credit card debt with it. That’s an important consideration if you know you’re prone to spending too much on your cards.

You also might opt to close a credit card with high interest rates or fees. Perhaps you would first transfer the balance to a card with more favourable terms (such as a balance transfer card like the ANZ Balance credit card), then closing the original account.

Another reason to close a credit card is that you want to consolidate — use a single credit card for all, or most, purchases (such as to accumulate more rewards points). You may even be safer with fewer credit cards. Having too many cards available that are unused means you might not check those statements as carefully. That puts you at greater risk for being a victim of credit card fraud (or at least you may not notice the unauthorised charges as quickly).

Cons of Closing a Credit Card

There are definitely some good reasons to close a credit card. That doesn’t mean you should though. There are also downsides. For example, you’ll negatively affect your debt to credit ratio (the amount of debt you have versus the amount of total credit available to you). That means if you suddenly need access to credit, such as for an emergency, you’ll have less credit available to cover the expenses.

Your debt to credit ratio also speaks to your overall creditworthiness — you’re considered less creditworthy if you constantly max out your available credit. While you may not do that, closing a credit card can make it appear that you do. For instance if you have two cards (each with a $10,000 limit) and you have $8000 in debt on one card ($0 balance on the other), your debt is 40% of your total available credit. If you close one of those cards, suddenly it looks like you ran up debt equal to 80% of your available credit — a significant change. In that case, you might want to pay down your overall debt before closing any credit cards.

Something else to consider before closing a credit card is the date it was opened. Your open credit accounts are visible on your credit file. It’s probably a good idea to keep your oldest credit cards open, even if you don’t use them often. That’s because they establish the length of your credit history when new potential creditors review your credit file. Having a 10 year credit history is better than the credit file showing only newer accounts still open. Again, it speaks to your creditworthiness and could influence your future application approvals, credit limits, or interest rates.

In the end you have to weigh the pros and cons before deciding to close an account. If you know the available credit limit will entice you to go into debt, then that factor may carry more weight with you. If you know you’ll apply for more credit in the future, like a mortgage, then the potential effects on your credit file might be a bigger concern. There’s no single right or wrong answer as to whether or not you should close a credit card. It varies case-by-case. At least now you know what to consider when making that choice.