FAQs: The Truth About Cancelling Credit Cards and Business Banking

The average American that carries credit cards has eight credit cards in his or her wallet.  It is natural to think about cancelling some of the cards that you do not typically use.  Plus, many people are concerned about what might happen if their wallet was lost with over $60,000 of credit in it.  Before you cancel your cards, it is important to know how cancelling cards can impact your credit, your FICO score, and your business. 

Below are a number of frequently asked questions about cancelling credit cards and how credit card usage can help small businesses:

Question: Will cancelling my card get rid of outstanding balance or past history?

No.  Once you have borrowed money for credit card purchases, it will not go away.  You need to pay off outstanding balances.  Cancelling a credit card will not undo past purchases, records of late payments, overspending, or charge-offs.  Most negative entries will fall off your credit report after seven years. 

Question:  Will cancelling my card enable my business to borrow more money?

Cancelling your cards probably will not make lenders look at you in a more favorable way.  Instead, use your cards responsibly to create a lasting line of credit.  A history of healthy credit card usage is a large factor in determining FICO scores.  Keep your credit cards active, and pay all bills on time.  Many small business owners need access to a line of credit to grow.  The right credit activity can help make activities related to small business banking easier.

Question:  When should I bother cancelling credit cards, and which ones should I cancel?

Your FICO score can start to lower after you have more than around eight cards in your name.  Although cancelling cards can be a hit to your credit score, getting rid of five out of your current twelve cards might be a good idea.  Keep the oldest cards.  The basic idea is to build a lasting line of credit.  Most credit mishaps and poor marks will be removed after seven years.  Keep the credit cards that represent your line of credit.  Also, keep the credit cards that offer cash back with no (or minimal) annual fees.  Ditch the cards with insane interest rates that were recently acquired first. 

Question:  How can the right credit cards help by business?

Business banking can be tricky for small business owners.  At some point, many small businesses are in danger of literally growing themselves out of business.  Growing too fast can result in an inability to fill orders and an inability to fund day-to-day operations.  Staff tends to quit pretty quickly when paid in IOUs.  Having a great FICO score can make you an ideal candidate for loans when you need them most.  Utilizing best practice with credit cards early on can help improve your chances of getting needed loans from lenders later down the line. 

The Bottom Line for Credit Cards and Small Businesses

Having credit cards is not only convenient.  Having a positive credit card history can help improve your FICO score and later make opportunities used when growing your business viable.  Exercise good use of credit cards, and cancel a few when necessary.