Not many people know that they can actually cancel their credit card instead of just physically shredding it up. But cancelling your card is not as simple as just picking up the phone and calling your credit card company. It’s definitely important to weigh the costs and benefits to this decision.

Pros

Cuts Down on Temptation: Obviously, if you have less power to buy, you will buy less and save more. For those without disciplined spending habits, this would be a great way to curb your shopping impulses.

Simplifying Bills: Cancelling a credit card gets rid of one more bill for you to monitor and can free you of even more potential headaches. For example, if you have a credit card open with no balance on it, you may forget to check for the miscellaneous annual fee or other random charges, causing you more complications in the end.

More Security: The less cards you have, the less prone you will be to someone stealing and using your card, physically or online.

Cons

Lowers Your Credit Score: Since you’re essentially closing a line of credit and reducing the amount of credit available to yourself, closing an account impacts the debt-to-credit ratio that is used to determine your credit score. For example, if you have a $10,000 line of credit (across two cards with $5000 credit limits) and have $2500 charged in total, your debt-to-credit ratio is 25%, which is low and considered to be good. Once you cancel one of the cards (with a 0 balance), your ratio will shoot up to 50% ($2500 with $5000 limit), which is a much higher and less attractive percentage.

Impacts Large Purchases: If you’re planning to buy a house, rent an apartment or apply for a car loan in the near future, then the ding to your credit score may compromise or delay these important transactions.