With all the sudden changes in the world economy, it is normal to reassess priorities and decide to clean up your finances. A good way to start is by looking at your wallet: how many credit cards do you have, and how many are actually being used? Credit lines or accounts are more and more popular.

According to a 2021 study by the Federal Reserve Bank of San Francisco, credit cards are now used to make 28 percent of all payments instead of cash, and people use to have at least three different credit card accounts (younger consumers tend to collect more cards throughout their life). Before you grab a pair of scissors and rip your cards to shreds, let’s take a look at the pros and cons of canceling credit accounts.

Pro: Keeps You Away from Potential Debt

Managing debt can be challenging. To make matters worse, many people see a credit card as an inexhaustible source of credit and withdraw it from their wallet every time they see a promotion or sale. If this is your case, canceling the credit card may be the best strategy to avoid the temptation to buy more than you can afford and avoid potential future debt.

If you have more than one, you can eliminate some of the cards and keep only those you use daily. Fewer options in your wallet could help you control your spending and even avoid a lot of annual fees for cards you are not using. But in extreme cases, you may need to cancel all available cards until you become more financially responsible.

Pro: Improves Your Credit Score

Your credit utilization rate is calculated by comparing the amount of debt you currently have and your total credit limit. The rule is the lower the rate, the better; this way, you show your creditors and lenders that you are using your credit cards responsibly. In other words, you can be trusted.

If, on the other hand, you misuse your credit cards and take a lot of time to pay the bill, the riskier you will appear to your creditors. They may think you can’t pay off debt and you’re always obligated to resort to credit. So the fewer cards in use, the less your credit score will be impacted.

Sometimes, closing one or more accounts can work in your favor regarding spending, with fewer bills to pay and keep track of. As your credit utilization ratio represents 30 percent of your credit score, using your credit card less is essential to maintain a solid score and even improve it.

Con: Shorten Credit History

Around 15% of your credit score is based on the length of your credit history. As credit scoring models like FICO can consider the average age of your accounts, canceling those older credit cards can impact your credit score (because it will erase a part of your credit history).

Of course, this is not automatic, and closed accounts stay on your credit report for up to 10 years. By choosing to cancel your old cards, you also have the opportunity to adopt more economical options without added perks, such as airline lounge access.

Usually, a good credit score range varies according to the model in use, but something around 600 is already considered “fair credit”. This means that if your score drops when canceling some old accounts, you can still find some alternatives, such as a 600 credit score credit card.

Con: Reduced Total Credit Capacity

Canceling your old credit cards can also harm your utilization ratio – that is, the amount of credit used compared to available credit. To keep it short, if you are forced to cancel an account that used to grant you a lot of credit, it will reduce your credit capacity, and your utilization ratio will drop considerably. This can also lower your credit score.

Keep Your Cards Close, But Use Them Wisely

Every cardholder needs to assess their situation and financial health before deciding to keep or shred their credit cards. The pros and cons above offer some arguments that may make your decision easier. At the end of the day, you are the one who knows the state of your finances and your debts.

If you can remain financially responsible or have more affordable credit line options that don’t cost you as much money in annual fees, there’s no harm in keeping your cards quiet and unused in your wallet. But if you are struggling to deal with debt and think it’s time to stop spending, don’t think twice about reaching for a pair of scissors.