You are on a mission to repair your credit. Today, you will send in the last payment on your credit card and close out all your debt for good. The smell of a fresh start is in the air and you want nothing more than to cancel all credit cards.

Don't pick up the phone just yet!

While fiscal responsibility (paying off your debt) is by far the most important factor in establishing good credit, cancelling your old credit cards is not necessarily a solid next step. It may feel right, but, in the end, you may wish you had kept those lines open.

Why is this?

There are two big reasons not to close down all unused credit cards when attempting to repair credit:

  1. Maintaining massive credit card debt is certainly not a solid plan for your personal finances, but keeping a few open credit cards is a great call. This is because all three of the U.S.'s national credit bureaus - Experian, Equifax and TransUnion - keep a close eye on the credit you have and how good you are about paying it off.

    Unless you own a very large amount of debt, having credit and paying it off - on time, every month - will raise your credit score. Think you can beat the system by being totally self-reliant and discarding your credit cards?

    Think again. Having a reasonable amount of debt and being able to pay it off shows creditors that you can be trusted with loans for things such as a house or vehicle. Without any credit history or any active credit cards, you are a gamble for creditors.
  2. The three national credit bureaus, in part, look at the amount of credit available to you, versus the amount of debt you hold. So, holding three cards with a total of $12,000 in available credit, even if you only hold $1,000 of debt on one card, is a good thing.

    Suppose you cancel the two cards you are not currently using. Your ratio of debt to available credit drops from 1/12 to 1/4, or from 8 percent to 25 percent. While it seems like common sense to rid yourself of cards that are not being used, it can actually lower your credit score.

So, in the end, in credit repair it is well worth your time to pay off your debt and establish responsible financial habits - but stop short of cancelling all those old cards.

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