Closing a Credit Card? Here's 1 Important Move to Make

Check this key item off your list when you decide you're done with a given card.

You'll often hear that keeping credit cards open is a better bet than closing them, even if they rarely get used. The reason? Closing a credit card could cause damage to your credit score in two ways.

First, if you close an account you've had open for many years, it could impact the length of your credit history. That's an important factor that goes into calculating your credit score.

Closing a credit card could also result in a lower credit limit on a whole. With that, you run the risk of your credit utilization ratio climbing into unfavorable territory, which could also cause your score to take a dive.

Still, it could make sense to close a credit card if it comes with an expensive annual fee and the card no longer benefits you. And if you're going to do that, you'll need to take another key step to avoid credit score damage.

Don't neglect your recurring bills

The great thing about credit cards is they let you arrange for recurring bills to get charged automatically every month. That way, you don't need to go in and pay them one by one.

Charging recurring bills on a credit card makes sense. You can rack up cash back or reward points for those expenses.

But if you're going to close a credit card, you'll need to comb through your statements going back at least a year and see which bills are set to autopay on your account. Then, you'll need to move those bills onto another credit card, or arrange to have payments sent from your bank account to cover them.

You may even decide to pay some of those bills manually until you figure out the best way to tackle them. The key, either way, is to make sure those recurring payments are accounted for. If you don't, and you wind up paying some of your bills late, that could serve as a black mark on your credit record, dragging your score way down.

Why do you need to go through a year's worth of credit card bills? You may have recurring expenses that only come up once a year, like a professional license renewal. Going that far back could help ensure you don't accidentally neglect any of your obligations.

Should you close a credit card if there's no fee involved?

It's one thing to close a credit card that doesn't offer great value to you and comes with an annual fee. But if there's no fee to stay on board as an account holder, then you might consider sticking that card in a safe place and keeping it as a backup payment option. Retaining that account could help your credit score stay in solid territory.

Of course, if you're going to keep an old credit card but just not use it, you'll still need to go through your statements and move your recurring bills over to the card you get to replace it. It could be the case that a different card comes with a lower interest rate and better rewards program, in which case moving your bills over is a smart move.