Money Smarts Blog
Should I close the credit card I opened for holiday rewards?
Jan 28, 2022 || Carly Carman, Financial Health Coach
How many times during the holiday shopping season were you asked to open a store credit card in exchange for the perk du jour? If I took the bait from every festive associate, I’d need a bigger purse. Sure, you’re offered some fabulous deals (30% off your total purchase is a great money-saver) — but is it worth it in the long run, and should you close the cards you opened once the holidays are over?
Let’s take a peek at the benefits and drawbacks.
1. Watch out for temptation
Does another card in your wallet have you itching to go on a shopping spree? If you’re not the best at practicing restraint, it may be best to cancel the card after the holidays have come and gone. But if you’re pretty good at spending responsibly and curbing your impulses, it might be worth keeping the account open to have on hand. Just remember to use the card from time to time to keep it active (a year or more of inactivity may close your account, which could negatively impact your credit score). Make it easy by automating a payment, like your Netflix subscription, so you don’t even have to think about it.
2. Consider your current credit
If you’re trying to build or improve your credit, opening a new line of credit might not be in your best interest. However, there are times when holding on to a store credit card can be useful — see point #1. That’ll help your overall credit utilization ratio, or the amount of available credit you’re using. Anything under 30% is recommended.
It’s important to remember that whacky term, because it’s the second biggest factor that impacts your FICO credit score. On the flip side, ditching a card (in this case, let’s say Card B gets the ax) makes your available credit limit go down. If you continue spending $800, that balance on a card with a $1,500 limit spikes your utilization ratio to more than 50%, flagging you as riskier to lenders.
PRO TIP: LEARN THE INS AND OUTS OF CREDIT CARDS Learn more about how credit cards work, what features to look for and how to manage a credit card responsibly with our credit cards playlist on Compass.
3. Speaking of, will you need the card later?
Let’s face it — life happens (and it just so happens we have a whole Balance Builder savings account dedicated to emergencies … but I digress). If you’ve opened a co-branded card (usually a partnership between a big-box store and Visa, Mastercard, Discover or American Express) you’ll be able to make purchases not only at the store itself, but at gas stations, restaurants and drug stores as well … all while earning cash back on purchases. A card like this might be handy to have in case something unexpected happens.
4. Check out the interest rate
You can score some great savings by opening a store card right at the cash register, but these cards notoriously carry higher interest rates. According to a new survey by CreditCards.com, the average retail card APR is 24.35% compared to 19.92% on a non-retail card. If you continuously carry a balance month to month, check out a balance transfer credit card designed to give you some time to pay down your principal without accruing interest. Closing the high-interest card out is another option, just know that your credit score might get dinged.
How often should you check your credit?
Nobody wants to be the victim of identity theft. That’s why it’s a good idea to periodically check your credit, known as a “soft pull.” Soft inquiries have no impact on your credit score, unlike hard pulls (such as loan and credit card applications), which can lower your credit score and stay on your credit report for two years.
The Consumer Financial Protection Bureau recommends checking your credit at a minimum once per year. Until April 2022, you’re able to get a free weekly report from each of the three major credit bureaus just by visiting AnnualCreditReport.com.
Should I close the credit card I opened for holiday rewards?
Jan 28, 2022 || Carly Carman, Financial Health Coach
How many times during the holiday shopping season were you asked to open a store credit card in exchange for the perk du jour? If I took the bait from every festive associate, I’d need a bigger purse. Sure, you’re offered some fabulous deals (30% off your total purchase is a great money-saver) — but is it worth it in the long run, and should you close the cards you opened once the holidays are over?
Let’s take a peek at the benefits and drawbacks.
1. Watch out for temptation
Does another card in your wallet have you itching to go on a shopping spree? If you’re not the best at practicing restraint, it may be best to cancel the card after the holidays have come and gone. But if you’re pretty good at spending responsibly and curbing your impulses, it might be worth keeping the account open to have on hand. Just remember to use the card from time to time to keep it active (a year or more of inactivity may close your account, which could negatively impact your credit score). Make it easy by automating a payment, like your Netflix subscription, so you don’t even have to think about it.
2. Consider your current credit
If you’re trying to build or improve your credit, opening a new line of credit might not be in your best interest. However, there are times when holding on to a store credit card can be useful — see point #1. That’ll help your overall credit utilization ratio, or the amount of available credit you’re using. Anything under 30% is recommended.
It’s important to remember that whacky term, because it’s the second biggest factor that impacts your FICO credit score. On the flip side, ditching a card (in this case, let’s say Card B gets the ax) makes your available credit limit go down. If you continue spending $800, that balance on a card with a $1,500 limit spikes your utilization ratio to more than 50%, flagging you as riskier to lenders.
PRO TIP: LEARN THE INS AND OUTS OF CREDIT CARDS Learn more about how credit cards work, what features to look for and how to manage a credit card responsibly with our credit cards playlist on Compass.
3. Speaking of, will you need the card later?
Let’s face it — life happens (and it just so happens we have a whole Balance Builder savings account dedicated to emergencies … but I digress). If you’ve opened a co-branded card (usually a partnership between a big-box store and Visa, Mastercard, Discover or American Express) you’ll be able to make purchases not only at the store itself, but at gas stations, restaurants and drug stores as well … all while earning cash back on purchases. A card like this might be handy to have in case something unexpected happens.
4. Check out the interest rate
You can score some great savings by opening a store card right at the cash register, but these cards notoriously carry higher interest rates. According to a new survey by CreditCards.com, the average retail card APR is 24.35% compared to 19.92% on a non-retail card. If you continuously carry a balance month to month, check out a balance transfer credit card designed to give you some time to pay down your principal without accruing interest. Closing the high-interest card out is another option, just know that your credit score might get dinged.
How often should you check your credit?
Nobody wants to be the victim of identity theft. That’s why it’s a good idea to periodically check your credit, known as a “soft pull.” Soft inquiries have no impact on your credit score, unlike hard pulls (such as loan and credit card applications), which can lower your credit score and stay on your credit report for two years.
The Consumer Financial Protection Bureau recommends checking your credit at a minimum once per year. Until April 2022, you’re able to get a free weekly report from each of the three major credit bureaus just by visiting AnnualCreditReport.com.
