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Spring cleaning: How to handle unused credit cards

In preparation for spring, we’ll help you make sure you’re not overloaded on unnecessary credit cards, with simple and easy tips to clear up any financial cobwebs lurking in your wallet.

Stack of credit cards

According to investigative documentary series Frontline, in 2000, the average American family held eight credit cards, with a total average debt of about $8,000. By 2010, the average American household’s debt had doubled to just under $16,000, without a substantial change in the number of credit credits.

While the average amount of debt is alarming, the number of credit cards per household is also discouraging. If you consider a household with two adult members, each person would carry about four credit cards. We’ll show you the best way to limit your open credit and how to clean up those unnecessary credit cards littering your wallet.

Careful! Don’t just cancel old credit cards

It can be tempting to simply open up your wallet or top drawer, pile old credit cards together, and simply cancel each account one by one. It may even be liberating. While you might feel better, one look at your credit score will send you into panic mode.

A major portion of your FICO credit scores (Experian, TransUnion, and Equifax) is comprised of your average account history. Most consumers with excellent scores average 20 years on their credit accounts! When you cancel credit cards, even unused accounts, you effectively erase the length of payment and account history from your FICO credit scores. This will substantially hurt your financial profile.

Maintain current accounts, with some exceptions

If you have fewer than four credit cards, the best plan is to make sure you are getting the most competitive interest rate available, along with the highest credit limit your income qualifies for, but proceed with caution. Contact the card issuer and request a decrease in your interest rate and/or an increase in your credit limit, so long as the request does not initiate a “hard pull” on your credit report. Hard pulls are perceived as requests for credit, which can hurt your score.

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Once you are confident that your interest rates and credit limits are set, then keep the accounts open. Plan on paying off high-interest cards with balances first. Once your credit cards are debt-free, use the cards every few billing cycles to maintain account activity, but pay off the balances in full each month.

If you have more than four credit cards, it’s likely you’ll need to talk to a financial advisor about the best way to handle the extra accounts. Depending on your specific situation, it might make the most sense to close the accounts. However, this is a drastic measure and should not be undertaken without seeking professional advice.

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Don’t open new accounts

You might have a gone a little credit crazy when you were younger and opened up store accounts that you didn’t need. Now you’re stuck with an account from a store you no longer shop at, and have your eye on a shiny new retail card from your favorite store. Unfortunately, this is one mistake that does not get better with time. If you open that shiny new store account, your total credit history length is significantly shortened — the same applies if you close that old credit account. So, stick with your bad decision and keep the account current and in good standing. Your credit score will thank you.

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