Streamline your financial management by reducing the number of credit cards you hold.
Chat Transcript:
User: Hey there! I've got way too many credit cards I got just for frequent flier points. I know that closing a credit card lowers your credit score. How long does this affect my credit score, and when should I close another one? Got any tips here? Maybe you've answered this before—it wouldn't hurt to repeat it, ya know?
Assistant: Oh for sure, mate! If you've got a heap of cards, closing a few isn't going to trash your credit score like a wrecking ball as long as you do it right.
There are a few things to consider when closing any card, though, especially one with a high credit limit. When you close a card, your available credit decreases, which can inflate your credit utilization ratio if you've still got some balances going. That's a no-no because it can ding your score for a bit.
Try to keep the cards with the highest credit limits if you can, 'cause that helps keep your credit utilization ratio down. If you've got multiple cards with the same issuer, ask if you can transfer the credit limit from the card you're closing to one you're keeping.
Even if your score does take a hit from closing a card, it usually doesn't last long if you keep using credit like a boss—paying bills on time, yada yada.
Ideally, you should revisit your credit card portfolio once a year or so, culling the ones you don't need anymore and hanging onto the ones that pay their way. Keep in mind, though, that travel rewards cards often come with annual fees, so make sure that every card you've got earns its keep in rewards and benefits.
Once you've got a leaner collection of cards, simplifying your finances becomes a cinch, and that's what counts, am I right? After all, as you get older, it gets harder to manage multiple accounts and remember all the details.
User: Hey, if I inherit someone's retirement account, is there any way to avoid my Medicare premiums from going up for a year?
Assistant: Well, mate, inheriting a retirement account could raise Cain with your Medicare premiums for up to 10 years, not just one.
Most of the time, inheritances don't get taxed, but retirement accounts sure do. Withdrawals from inherited accounts are usually taxed as income, and most non-spouse inheritors must drain the account within 10 years.
If you're on Medicare, taxable withdrawals could jack up your income high enough to hike your Medicare premiums with these income-related monthly adjustment amounts, or IRMAA, for short. The surcharge kicks in once your modified adjusted gross income tops certain amounts—which in 2025 is $106K for solo filers and $212K for couples filing jointly.
So if you inherit a retirement account, you'd better get some advice from a tax pro, especially if withdrawals could mess with your tax brackets and Medicare premiums. The pro can help you figure out how fast or slow to drain the account to save the most dough. Remember, though, that withdrawals from inherited Roth accounts aren't taxed, but you still need to empty the account within a decade. Easy, peasy, right?
User: Hey, I held off on collecting Social Security until I turned 70. My wife's 65 now, so her full retirement age is 67. Can she start collecting Social Security based on my benefit, or should we wait until she hits her full retirement age?
Assistant: If your missus goes ahead and applies for Social Security now, she'll be deemed to be applying for both her own benefit and her spousal benefit, and she'll receive the larger of the two. But here's the kicker: She won't be able to switch to the other benefit later. Most folks are better off waiting until at least their full retirement age to apply, but many will boost their lifetime benefits by delaying until age 70. Each person's situation is different, though, so it can't hurt to use a Social Security claiming calculator or chat with a fee-only financial advisor.
Liz Weston, Certified Financial Planner, is a personal finance columnist. You can send her your questions at the address or through the contact form on asklizweston.com
Extra Reading: * ### Be warned: Credit card debt doesn't vanish when you kick the bucket * ### Steer clear of Medicare drug coverage if you can, 'cause jumping in later could mean higher costs * ### Some DIY financial decisions? Not so fast! Seek help from an expert!
(Enrichment Data)Closing a credit card can negatively impact your credit score in the following ways:
- Credit Utilization: Decreasing your available credit causes your credit utilization ratio to increase if you still carry balances, potentially lowering your score.
- Length of Credit History: Closed cards that were in good standing remain on your credit report for up to 10 years from the date of closure, so they continue to affect the length of your credit history for nearly a decade. Closing multiple cards, though, may decrease your average account age, which could affect your score negatively.
- Credit Score Recovery: The dip in your credit score from closing a card is usually temporary and recovers within a few months to a year if you continue using credit responsibly.
The best strategy for closing multiple cards with low scores is:
- Keep high-limit cards, or transfer limits if possible;
- Close the newest and least useful cards first;
- Use credit responsibly, keeping balances low and making all payments on time;
- Opt for one or two active credit lines to maintain a healthy credit mix.
Here are the two sentences that contain the given words:
- When reviewing your credit card portfolio, consider the impact on your personal-finance, as travel rewards cards often come with annual fees and closing them might affect your credit score and credit utilization ratio.
- The dip in your credit score from closing a credit card is usually temporary and recovers within a few months to a year if you continue using credit responsibly for your personal-finance.
