2 Times Closing a Credit Card Could Actually Make Sense

Don't leave your old cards open -- unless it benefits you.

If you have a credit card you aren't using any more, you may be tempted to close down the account. Before you do, though, you should be aware that shutting down old credit card accounts isn't always in your best interest.

When you close an old account, you could end up reducing your credit score. This could happen if shutting down the account reduces the average age of your account history, as having a longer credit record helps you earn a higher score. Losing the card's positive payment history can also hurt your score, since your record of payments plays the biggest role in your credit rating.

If you close down an old account, you'll also end up using more of the credit you have available to you, since you'll lose that line of credit. This could be a problem, since credit used vs. credit available is an important factor -- called credit utilization ratio -- which helps to determine your credit score.

Because of these downsides, it's usually best to keep old accounts open even if you don't need the card anymore. However, there are two situations where you may want to shut down your account despite the potential damage to your credit score. Here's what they are.

1. If you're worried about your spending habits

If you find yourself spending more than you can afford to pay back on time each month, having a card open could be too much temptation for you. After all, the more credit you have available to you, the greater the potential you could end up in a lot of high-interest debt.

Ideally, you'll be able to avoid using the card even if you don't close it. You could cut up the card and still keep it open -- as long as the card issuer doesn't close it due to inactivity. Or you could use the card to make one small predictable purchase -- such as paying only for a streaming service. And you could automate that payment so the card stays open and keeps maintaining your credit record but doesn't put you at risk of overspending.

But if you think you'll overspend if the card stays open, you're better off closing the account than risking a situation where you charge a lot that you can't pay back.

2. If the card is charging you a high annual fee

The second big situation where closing a card could make sense is if you're paying a high annual fee and not earning rewards or taking advantage of any cardholder perks.

Rather than just accepting this expensive monthly cost year after year, you may be better off just closing the account -- especially if you won't be taking out a big loan any time soon, such as a mortgage, and you can afford to take the temporary hit to your score.

In this situation, it's usually worth asking the card issuer if you can downgrade the account first before closing it. If you can switch to a no annual fee credit card in the issuer's lineup, you may be able to both get rid of the fee and avoid the hit to your credit score. But if that's not possible, then closing the card could be smart.

The important thing is to determine if the pros of closing the card outweigh the cons. If they do, then shutting down your account could be the best move you'll make.