Seeking Low-Interest Cards in Quest for a Better Credit Score

Dear Let's Talk Credit,

I have four credit cards. All of them have pretty high interest rates because I got them a few years ago to build credit and I was young with no credit history. Now my credit score is pretty good, and I really don't use them anymore. Would canceling all of them hinder my credit score a lot or just a few points? I would like lower interest rates, but none of the cards are willing to do that for me, which is why I want to cancel them. Thanks in advance.

- Jake

Dear Jake,

Congratulations on building a great credit history and credit score. I completely understand wanting lower interest rates on your cards. But, before we take on your entire question, I'd like you to think about how you plan to use a card with a lower interest rate.

You should only be concerned with an interest rate if you plan on carrying a monthly balance. I would like to caution you that carrying a balance is something you should work to avoid, if possible. For example, if you need to replace a non-working refrigerator or you want a new television, it would be ideal and financially smart to save for those purchases and then buy them after you have saved enough money. But, if you decide you want to use credit for those purchases, develop a plan for how you will pay off the balance. I recommend carrying a balance for no longer than 90 days.

Now, for your question about canceling the cards: Your credit score will dip slightly if you cancel your cards and you have other positive credit accounts on your credit report. It may drop more drastically if these cards are your only credit accounts. However, if you are carrying balances, closing them could affect your "credit available" to "credit used" ratio. That change in your credit utilization ratio could lower your credit score.

You don't need all four credit cards from a scoring perspective, so you could always close two of them and keep the other two open. When closing, choose the cards that have an annual fee or any other fees associated with the account. As for the two you keep open, pay off the balance in full each month and you won't have to worry about the interest rate. If you are seeing a larger purchase coming up, where a balance will carry over for a number of months, you may want to shop around for a low-interest card.

Let's keep talking!