Nearly nine in 10 Canadians have at least one credit card, making this form of payment the most popular in the country by far (1). In fact, it’s quite common for Canadians to carry multiple credit cards in their wallets.
Take Jane, for example, who is a hypothetical case study but reflects widespread Canadian financial concerns and habits. After learning about the rewards and perks that many credit cards offer, she decided to take advantage by filling her wallet with more than 20 different cards. And while Jane is far above the average, with 100 million credit cards in circulation in Canada, Canadian adults each have an estimated 2.4 credit cards per person (2).
Despite the fact that Jane pays off her cards every month and has good credit, she no longer sees the benefit in carrying so many. She would love to significantly cut down the number of cards she owns, but is worried about the impact this could have on her credit score. A friend told Jane that cancelling credit cards can cause her credit score to drop, and her friend is correct.
When canceling a credit card, it’s important to think carefully about the impact it may have on your credit score, which significantly affects your financial well-being.
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How canceling credit cards affects your credit score
Canceling a credit card can impact your credit score in a few different ways, though the impact is usually temporary:
- You lose your positive payment history. Payment history is the most important factor in calculating your credit score, accounting for 35% of your overall score. (3)
- You increase your credit utilization ratio. This is the ratio of credit used versus credit available. Cancelling a card removes that portion of credit from your available credit, but since the amount you’re using doesn’t drop, you end up using more of what’s available. This ratio is the second-most important factor in the credit scoring formula, accounting for about 30% of your score.
- You shorten the length of your credit history and change your credit mix. Both of these are also factored into your score
- The specific amount that your credit score can drop varies based on many factors, including how many other credit cards you have, how old they are and how much of your available credit you’re using.
For Jane, cancelling just one of her more than 20 credit cards may not hurt her score that much, but cancelling an abundance of them is likely to have a negative impact on her credit profile for the time being.
Should Jane cancel some cards anyway?
There are some instances in which cancelling a credit card makes sense, despite the small, temporary hit to your credit score. Deciding whether or not to close a credit card can be tricky, and it often helps to weigh the risks against the rewards.
For example, if you are struggling to keep track of all of your credit cards and are often making late payments, getting rid of a few can be justified. Late payments can have a very negative effect on your credit score.
Furthermore, if any of your credit cards have annual fees and you aren’t using them enough to justify the cost, or if the interest rates are a little too steep to carry a balance, closing those cards may also make sense.
However, there are a few instances where it might make sense to keep some. For example, if your credit cards don’t have annual fees and you aren’t overspending on them, there may be little reason to close them. You may also want to keep a credit card open if it’s your oldest credit card account, or your only one.
While Jane’s credit score may dip a bit after cancelling a credit card, the drop is usually temporary. As long as she continues to make on-time payments on her other cards, the impact shouldn’t be too dramatic and her score should soon recover.
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How to decide which credit cards to cancel
If Jane decides to cancel a few credit cards, she should first focus on the ones that have an annual fee. If she isn’t using them regularly, there’s no reason to pay a fee just to avoid a small hit to her credit score (especially if she isn’t expecting to take out a big loan any time soon).
Next, Jane should focus on closing newer accounts or accounts with the lowest credit limits, as this will make the impact on her credit score a little less dramatic. The credit bureaus tend to favour a long history of using credit responsibly, and cancelling an older card could hurt her credit when that account no longer appears on her credit history.
Jane should then consider which credit cards have the best rewards programs that are well matched to her spending. If she were to keep those cards and pay them off — or at least pay them down a fair bit — this could help Jane with keeping her credit utilization ratio down during the process of getting rid of the cards she no longer needs.
She can also close the undesirable cards slowly over time, rather than all at once, to further limit the impact on her score.
How many credit cards is too many?
For Jane, who no longer wants to carry more than 20 credit cards, it makes sense for her to try to slowly pare that number down.
There is, however, no standard number of credit cards that one should carry. Sticking with the national average (two to three) would give Jane the chance to benefit from rewards programs that target different spending, without giving her too many to manage.
But it’s ultimately about what Jane can handle. If she has so many credit cards that she can’t keep track of payments and isn’t regularly redeeming rewards or using the perks, then she should make a change.
Carrying 20 credit cards is a lot to deal with, so remember that each time you open a new card to get bonuses or rewards, you may be potentially creating a headache for yourself down the line.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Canadian Bankers’ Association (CBA) (1); Ratehub (2)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.