So you have just recently paid off a high interest credit card balance and you have decided to never, ever use that #$%!@#$^&* card again. The card you just paid off has a very high credit limit – say $12,000 – and you never want to be that indebted again to a big bank.
Should you cut that card up and cancel your account? That will depend upon your situation, but there might be some negative consequences for doing just that.
You can click here for an article discussing the effect of canceling your credit card may have on your credit score. If you need every point of your credit score to get a loan or re-finance a mortgage, then you may not want to cut up your card and cancel the card.
Here is an excerpt of that discussion.
It is a common situation for U.S. consumers to find themselves in — too many credit cards taking up space in their wallets. For many cardholders, the decision to cancel a credit card or two they don’t use anymore seems like a no-brainer, at least until they hear what many financial experts have to say. Often, these experts suggest it is a bad idea for consumers to cancel an existing credit card account.
But, you may be fed up with being “held hostage” by big banks and their credit cards, charging interest rates approaching usury rates while paying you a penny for every $1000 you invest with them. Or you want be in control of your own finances. Then, cutting up a credit card and cancelling the account could prove extremely cathartic.
[Other] individuals suggest that unless you are on the edge credit-wise and need every point to support your credit score, taking a temporary hit to your score is worth the satisfaction of canceling a credit card you don’t need or want anymore. Of course, since timing is everything, you probably should not cancel a credit card just before a lender plans to check your credit history (such as when applying for a mortgage). But otherwise, eliminating some stress from your life by canceling a credit card is a smart decision, they say.
It will still be your decision on what you do with that piece of plastic.
If you are in a situation where you will be applying for a loan to buy a house or automobile, or . . . . ., then you may want to wait to cut up the card and/or cancel the account until that loan has been approved.