Should I close unused cards?

ladyV

I am trying to improve my credit worthiness. I may wish to apply for a mortgage in the next year or 2. 
I have one default from 2020 which has affected my credit rating. 
Earlier this year, I applied for 3 subprime 0% balance transfer cards. These are now paid in full. 
I now have 7 credit cards altogether. Amex, virgin money and 5 subprime. 

Is it good or bad if I close the 3 balance transfer cards? 
Thanks 

CliveOfIndia

It's always something of a debatable issue.  On the one hand, closing the cards will reduce your available credit, which can have a small positive impact.  On the other hand, a lender looking at your file will see the cards have been closed, but won't know why - they won't know whether you closed them voluntarily, or whether the lender closed them.

However, if you're not planning on using the cards, then you may as well close them - the lender will close them anyway after an extended period of inactivity.  Probably best to space them out - close one, then leave it 2 or 3 months before closing the next.

It's pretty much a case of six of one and half a dozen of the other overall though.

Obviously having a default on your file is not ideal - however, after 4 years its impact will be negligible, especially if it has been superseded by plenty of positive history.

As long as you can be disciplined, then use your other cards "properly".  Use them for planned, budgeted purchases (food, petrol, etc.) and always repay them in full every month without fail.  This is the simplest (and free) way to build up lots of nice green ticks on your credit file.

Obviously, never spend more than you can afford.  You don't necessarily have to use every card every month - use the Amex one month, the Virgin the next, etc., if you want to.

Do any of them give you rewards (points, cashback, whatever?).  If so, you may as well use that one for most of your spending and just put an occasional transaction on the others to keep them active.

Nebulous2

It's up to you as to whether you think you will need them or not. The impact on borrowing is arguable as said above, and mortgages are different from other debt. If your history is mixed then using a broker would be advisable. They will advise on cards as well. 

If you do close them, close the lowest limits and try to keep the oldest ones open. I'd probably go 50/50 if I was you, close 3 and keep the rest. 

Jami74

I close balance transfer cards as soon as promotion has finished and they're paid off. Last year I closed 3 in the space of about 6 weeks. Nothing bad happened and I have since been approved for a mortgage.

I've got 4 credit cards that offer various rewards and are required for direct debits, all paid in full.

I'm not completely convinced that it's always a human that reviews credit histories and ponders why someone may have closed cards after they'd been paid off, but if I was ever asked I would just say I was tidying up my finances and closing unused cards.

CliveOfIndia

Jami74 said:

I'm not completely convinced that it's always a human that reviews credit histories

It almost never is a human, it's always automated.  Each lender has a computer algorithm that contains all of their proprietary lending criteria, in different combinations and with different weightings assigned to each data point.  All that happens is that they pay to get a customer's data from the CRA, feed it into their systems and the computer spits out an answer.

It's possible that very occasionally it might be followed up by a manual review - but that's very rare.  Quite apart from anything else, it costs a lot of money to pay someone to work through an application, whereas a computer can do it in a fraction of a second.

ladyV

Thanks all this is helpful. I'll probably close them one by one.
I was wondering if any would give me a further 0% balance transfer offer but it doesn't look like it.