Before Canceling a Credit Card, Do These 3 Things

Don't rush to unload a credit card. Instead, first make sure that's a smart move.

The more credit cards you have in your name, the more temptation you'll have to spend. As such, you may be tempted to cancel those credit cards you no longer use.

But actually, hanging on to credit cards can work to your benefit, even if you don't charge expenses on them. For one thing, the more credit cards you have, the higher your total credit limit will be. And that could help keep your credit score in good shape. One big factor that goes into calculating your credit score is your credit utilization ratio, which measures how much of your total credit you're using at once. The higher your cumulative spending limit, the lower that ratio is apt to be, which is a good thing for your score.

The length of your credit history also goes into calculating your credit score. The longer you have accounts in good standing open, the more it will help your score -- whereas if you close credit cards you're not using, they'll no longer count toward your credit history.

It's for these reasons that you should never rush to dump a credit card you feel you no longer need. Rather, you should do these things first.

1. See how long you've had that card open

A newer credit card -- one you've had for a year or less -- isn't a card you should stress about closing. It's your long-standing accounts that are far more important to hang on to for credit history purposes. If you're thinking of getting rid of a newer card, that may not impact your credit score much -- or at all.

2. See if your issuer will waive the annual fee

As a general rule, it doesn't make sense to pay an annual fee for a credit card you don't get much use out of. But before you cancel a card that has an annual fee, there's always the option to call up your issuer and see if you can get that fee waived. Your credit card company may agree to get rid of that fee for a year, or even permanently if it wants to retain your business. And once that fee is taken out of the equation, there's no reason not to hang on to a card you've had for a while.

3. See if you can downgrade to a no-fee version of an existing card

It may be that your credit card issuer won't agree to waive an annual fee. But that same issuer may also be able to convert your account to a downgraded version of your current card -- one that offers fewer perks and benefits, but also has no fee to pay. Moving to a no annual fee credit card is a move worth making because chances are, your original account will still be counted as open for credit reporting purposes, even if the terms of your card change with that downgrade.

Having too many credit cards can be a hassle. But in some cases, holding on to certain cards -- especially older ones -- can really work to your advantage. Before you rush to cancel a credit card, see if doing so is likely to hurt your credit score, and also, see if there's a way to make that card less expensive, whether by downgrading it or getting your issuer to agree to get rid of its fee. Doing so could preserve your credit score, making it easier for you to borrow money affordably when you need to.