Conventional wisdom says that you should never close a credit card account unless you have an overwhelmingly pressing reason to do so.
It's true that closing an account can hurt your credit. If you close an old account, it can shorten your credit history, which can then lower your overall credit score. Also, closing an account means that you have less credit available, so the balances you do have will take up a larger percentage of your available credit. This is called your credit utilization ratio (an important factor in your overall credit score), and you want that percentage as low as possible.
This doesn't mean that you should never close a credit card. Instead, it means that you need to be smart about which accounts you close and when you do so. Here are a few times when it makes sense to consider closing a card. (See also: How to Use Credit Cards to Improve Your Credit Score)
1. Preventing Identity Theft
The more credit cards you have, the greater the danger that one will be compromised and you'll have to deal with identity theft. If you have a card that has been stolen or are anxious about identity theft, consider closing one or more cards to reduce your risk.
The accounts most at danger are the ones you don't use very much. If a thief can get hold of one of these numbers, often by compromising a website where you used the card to make a purchase a long time ago, they can sometimes put quite a few charges on the card before getting caught. If identity theft is a worry for you, think about closing these infrequently used accounts first. An even better alternative: Avoid identity theft in the first place by practicing good credit card safety measures, such as only purchasing on secured, trusted sites using secure Wi-Fi.
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