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Should I cancel my two high-interest credit cards I no longer use? I'm worried they may hit my credit score...

Daily Mail logo Daily Mail 5 days ago George Nixon For

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I currently have four credit cards, two of which are high interest ones I took out when no one else would accept my application.

I've had both for about four years now and the interest rate is shocking compared to the cards I have been accepted for more recently and now hold.

Should I close these two cards down, in case the credit available on them stops me getting better deals and rates elsewhere?

George Nixon, This is Money, replies: Whether you've got a bad credit history or no credit history to speak of at all, you might find you are forced into applying for cards with higher interest rates.

This is because lenders see you as a less creditworthy borrower, either because you've got a poor history stemming from missed payments, defaults or other issues, or they can't make a judgment as to what kind of a borrower you are.

You might also find as a result that you are granted a lower credit limit even on the higher interest cards you apply for.

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It's worth noting that a credit card interest rate doesn't matter if you pay off the balance in full every month, so when you have a higher rate card and are able to do that it'll improve your finances in two ways.

Firstly, you aren't being charged interest on your balance, and secondly it'll help boost your creditworthiness which will make you more likely to be accepted for lower rate credit cards, as in your case.

You raise an interesting point about whether lenders will see you have thousands of pounds of unused credit and wonder why you need more.

Once you 'graduate' from needing those higher rate cards, what do you do with them?  

Cancel them and cut them up as a relic from your financial past seems the logical answer. 

However, while you might think at first glance getting rid of them might make things better, it might actually be the other way around. 

James Jones, head of consumer affairs at Experian, said: 'Keeping unused credit cards open can often help your credit score. 

'This is because the unused credit will positively impact a measure we call "credit utilisation", which is basically how heavily you rely on the credit you've already been granted.

'Most lenders see low utilisation as a very positive indicator and I've yet to see an example of a lender being spooked by someone having a high unused credit limit on one or more cards.'

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He added: 'Furthermore, accounts that have been open for several years can also help your credit history mature, another positive factor for credit scores.

'As an example, a five-year-old credit card with a high limit, low balance and perfect payment record can boost your credit score by around 200 points.'

How playing your cards right could help boost your credit score 

Credit rating agency Experian here gives six ways that you can be smarter with your credit card usage to help boost your credit score

 1. Be a reliable customer - make at least the minimum monthly payment on time  

2. Keep your balances low if you can 

3. Be trustworthy - being granted a generous credit limit by an existing provider underlines your creditworthiness to other lenders 

4. Try to use your cards sparingly, so as not to appear over-reliant on credit 

5. Try to not look like you're in persistent credit-card debt and can only afford to meet the bare minimum monthly payments  

6. Shop around but try to let some credit mature - lenders value stability and loyalty

However, if you did want to close down one of them, James said: 'I'd probably close the one with the lowest credit limit.'

You might also take the view you want to scrap one of the high interest cards if they don't offer any perks at all, be that a 0 per cent interest term on purchases or balance transfers or a cashback bonus.

Meanwhile, you might also wonder if lenders measure your creditworthiness based on the types of cards you've held, or if having a high interest card leaves you with a black mark

While different credit score providers assess things slightly differently, which is why it may sometimes be worth checking your report with all three of the big credit rating agencies; Experian, Equifax and TransUnion, you shouldn't necessarily worry about this.

James said: 'Experian credit scores do not directly differentiate between prime and subprime credit cards. 

'Firstly, we have no sight of the APR and, secondly, for confidentiality purposes we anonymise the names of banks and lenders on the version of your credit report that lenders get access to.

'That said, I think it's fair to say that sub-prime cards do tend to have lower credit limits, which could influence scores in a number of ways.'

George Nixon adds: Ultimately, if you want to truly put a period of your life when you've needed high interest credit behind you, you can scrap the cards if you want to. 

But there's a chance that having one left open might actually help you, even if you simply bury it deep in your sock drawer and don't use it as your go-to card. 

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