The rates are climbing. The debt is mounting. The rewards are waning. The security risks are growing. So, what should you do with your credit card? Close it or keep it?

There are sound arguments for both. Conventional credit card wisdom is that closing a credit card account will adversely affect your credit score by skewing your credit utilization and debt to credit ratio. But there are some equally compelling reasons to say goodbye to a particularly bothersome piece of plastic. Let’s begin by outlining what will likely happen when you close your account.

How Closing a Credit Card Affects Your Credit Score

Closing your account with a credit card issuer does not close the case on your credit history. If you have  late payments, delinquencies or other negative items, these will not go away when you close your account. (See: Experian’s criteria for deletion of information from your credit report.)  Likewise, if you have positive information that won’t go away as soon as you close your account either. What will go away is your credit line. And that matters.

The consensus among lenders is that a low debt to credit ratio is an indicator of low credit risk. So, if you have two cards, both with a $3,000 credit line and a $500 balance, you are sitting relatively pretty at a 8% utilization ratio. But eliminate one of those cards without reducing your balance and you’ve jumped to 16%. Not good.

Another thing that lenders look at: track record. The longer you go without defaulting, they assume, the better your chances of continuing on without issue. Lenders take a look at your credit accounts and average their lifespan. So, if you’ve got a spiffy new card that’s been open for 6 months and a card you’ve had since college 7 years ago, and you close out your old card, you can imagine how that affects your average.

Lastly, most people will point out that if you don’t carry a balance on a card, it certainly won’t hurt to hang on to it, even if the interest rates get jacked up. That’s true, in a way. In fact, Kiplinger flatly states that closing a credit card never helps you and always hurts your credit score. But let’s look at why you might want to close a credit card account.

Reasons to Close a Credit Card Account

Number one reason to close your credit card account: security. Check out these news stories:

• The Inside Story of Wal-Mart’s Hacker Attack
• Thousands of Debit Card Numbers Stolen From Colorado Springs Liquor Store
• Atlanta men sentenced for credit card fraud
• Pair who swiped credit cards from hospital staff face prison
• 30 Napa victims say their ATM card data were stolen
• Cyberthieves find workplace networks are easy pickings

That’s just from a cursory Google News search. There are thousands of more cases and countless stolen credit card numbers that are yet to be reported.

Each credit card account you have is another opportunity for identity theft. The fact that you aren’t using it regularly, thus not regularly checking your online statements – heck you might not even know where the card is – means that it’ll be even easier to steal – especially if it has two or more authorized users. Close the window to keep the burglars out.

Another way credit cards can sabotage you: temptation. Some of us have way too many credit cards. Maybe we desperately needed them when times were tough. Maybe we signed up for one or two or three in order to get free sandwiches and pizzas on campus. Maybe we kept signing up for new credit cards to get rewards but never cancelled our old cards  because we heard that it was bad for our score.

At any rate, for someone who has had problems with debt in the past, keeping a bunch of credit cards lying around is a bit like an alcoholic hanging out in a bar. With so many opportunities to spend, it’ll be easier to relapse. Remove the temptation by removing the extra plastic from your life.

Also, if you have a decent credit history and you aren’t planning on making any big finances soon, it probably won’t be a big deal. It won’t make or break you, especially if you won’t be applying for a loan tomorrow. And if you are, simply close out your credit card after you close on your mortage. The effects of closing an unused, risky card aren’t permanent. And they are certainly easier to recover from than identity fraud or an account that lapsed into delinquency because you forgot about it.

If you are still worried about the adverse affects from closing your credit card, you can ask to extend your credit line on the cards that you are keeping. Closing out one card and doubling the credit limit on another card effectively reduces clutter, temptation and security breach opportunities without screwing with your utilization ratio.

What are your thoughts? Is it better to get rid of unneeded, unwanted credit cards? Or is it better to hang on to it for those few extra FICO points?

Related posts:

1. How To Cancel a Credit Card Without Hurting Your Credit Score
2. 15 ways to improve your Credit score (Part 2)
3. Balance Transfers: How They Work and Do They Help?
4. Why You Should Think Twice Before You Cancel a Credit Card
5. 15 ways to improve your Credit score (Part 1)