The Nest

Monday, January 28, 2008 4:56 PM

I have five credit cards. Should I cancel some of them?

That may seem like a lot of cards, but you’re actually on the low end of the average for Americans, who usually have between 5 and 10 cards, counting store cards. The key question isn't how many cards you have -- it's how much you spend in relation to how much you pay. If you pay off your bill on time each month and don’t ever get more than halfway to the balance limit, then you’re doing your credit score a favor in most cases.

But if you have a problem with your credit and five cards entices you to overspend, you might want to think about trimming back. But don’t pick up the phone to cancel right away. First, find out your credit score and see how bad things really are. Once a year, you can get your score for free. Then evaluate which cards have the lowest rates and put those in the keep pile. Definitely think about paying off and canceling any store cards you have because they cause the most problems with your credit score (your score will need to be in great shape when you try to buy a new pad).

For any cards in the discard pile, cancel them slowly; your credit score is based on your debt-to-credit ratio, which isn't supposed to tip over 50 percent. That means that if you have five cards with a limit of $2,000 on each card and you cancel three of them, your combined credit limit drops from $10,000 to $4,000. So, if you owe under $2,000, you’re fine, but if you owe more, you could raise some red flags.