MONEY COMMENT
The Importance Of Cancelling Unused Cards

By Jane Mack (TMFJane)
March 5, 2004

Regular readers of the Motley Fool will probably have a good idea of how to play the credit card game by now. You know the one - transferring costly balances from one card to another that offers a temporary 0% deal so you can make use of borrowing money interest free. Some people have even become quite expert at the game using 0% cards to offset their mortgages.

However, when playing the Credit Card Shuffle, keep an eye on the number of cards you're accumulating and ensure that you cancel the ones you have finished using.

The reason is that when a credit check is run on your file, the searcher will see exactly how many credit cards you've got, the amount of credit that's available to you and the balances you've got on each of them. They're not just looking to see if you have missed payments or defaulted enough to warrant a County Court Judgement. If you've simply got a lot of cards and, in particular, a lot of available credit, it might still look as if you're not a good credit risk.

For example, I financed some home improvements last year with the use of a 0% credit card (Card One) and when the six-month deal finished I promptly applied for a new 0% card (Card Two) so I could switch the balance and continue borrowing the money interest free. If I haven't paid off the second card by the time the interest-free term runs out I'll simply apply for a third card offering a 0% deal (Card Three) and switch the balance again.

However, on the face of it I currently have two credit cards offering me total available credit of £14,000 (£6,500 + £7,500) even though Card One has no balance on it at all and I've no plans to use it again. But, if I need to apply for Card Three, to anyone searching my records it's going to look as if I'm a bit credit hungry.

And that could affect my credit score which might mean I either get turned down for Card Three or don't get offered enough credit to cover the balance I want to switch.

As it happens I'll probably be okay because I reckon I'm good for quite a lot more credit. But people who have a whole collection of cards that are gathering dust should consider cancelling them and closing the accounts. It could improve your credit score and, you never know, in a year or two, you might even qualify for introductory offers from cards you've had in the past as you'll be considered a new customer.

Don't cancel them all at once because, just as multiple card applications look a tad suspicious, so do multiple cancellations.

Find out more about Credit Cards; Cunning Credit Card Conduct