At a Glance
After many years of using credit cards and accumulating new cards, it’s only natural to wonder whether or not you need some of the older cards in your wallet. This leads many people to ask the question ‘Should I cancel unused credit cards?’ Unfortunately, this question does not have a simple answer, as card closure can have unforeseen repercussions.
In this article, you’ll learn:
Why you shouldn’t cancel unused credit cards?
Generally, the main reason you don’t want to cancel unused credit cards if you can avoid it is due to the fact that having a higher credit line and more credit accounts actually benefits your credit score in the long-run. In addition to this, if you are thinking about closing credit card accounts that are some of your first accounts, your length of credit history will be cut shorter than it really is. This can negatively impact your score quickly, which is why you should never cancel your first credit card.
Beyond the above points, there are five main factors that go into credit score calculation that can be impacted by canceling credit cards:
1. Payment history (35%)
The biggest factor that goes into calculating your credit score is your history of payments with debt. When you cancel a credit card, the payment history associated with that card will be reset to the next oldest card, which can negatively impact your credit score if you haven’t been making payments on that other card for as long.
Learn more: What is Payment History
2. Credit utilization ratio (30%)
A person’s credit utilization ratio refers to how much of their total credit they are using during a billing cycle. Generally, for improving a credit score, you will want a credit utilization of 10-30%. By canceling unused credit cards, however, you will reduce your total credit line which can increase your credit utilization ratio.
Learn more: What is Credit Utilization
3. Length of credit history (15%)
As mentioned, the length of a person’s credit history is a significant factor in their credit score. By canceling old accounts, you reduce this length which can negatively impact your overall score.
Learn more: Length of Credit History
4. New credit (10%)
The amount of new credit accounts you have also factors into your credit score, which makes this one of the few factors not heavily impacted by canceling older accounts.
5. Credit mix (10%)
Finally, a person’s credit mix is another factor that goes into their credit score. When you cancel older accounts, specifically if they were a different type of credit, you can negatively impact this factor which can reduce your credit score.
Learn more: What is Credit Mix
What to do with unused credit cards?
One of the best strategies to utilize with old credit cards is to simply keep the account active, but not use it regularly. Simply put a few expenses onto the card on a monthly basis just to ensure the credit card company doesn’t close the account automatically from a lack of use, then pay it off monthly. This will ensure the account stays active while keeping your history of payments strong.
When you should cancel an unused credit card?
In truth, there is no real reason why you should cancel an unused credit card in your name unless it is seriously impacting your credit negatively in some way. If the account is automatically closed, reach out to the credit card issuer to see if they will reinstate the account.
Why you might want to close an unused credit card?
While the answer to Should I cancel unused credit cards is almost always no, there are a few reasons cancelling an unused card may be necessary:
1. There’s a temptation to spend
Assuming you simply can’t control your spending habits and having a credit card is too tempting, closing the card may be the best choice for your overall finances. Start by trying to reduce the spending on this card to reduce the temptation.
2. There’s an annual fee
Annual fees on unused credit cards are simply an expense you are not earning anything from. For certain mid-tier to premium credit cards, a high annual fee can be extremely frustrating. If this is adding up over time, the answer to Should I close unused credit cards may change to yes.
3. You want a new card but can’t get one
Assuming you are trying to apply for a credit card but the main hang-up the issuer has is the number of credit card accounts you have outstanding, closing one of your earlier accounts may be a good choice. With that said, always avoid closing the oldest account.
How does canceling a credit card affect my credit score?
When you discard credit card accounts, you’re likely wondering does closing a credit card hurt credit and by how much. Depending on the type of credit card account you close, such as whether it’s your first account or a unique type of credit, your credit score may be affected differently. If you close your first credit account, your score may be impacted by tens of points, but if it’s simply a different type of credit your score may only be impacted by a couple of points.
Learn more: Does Closing a Credit Card Hurt Credit
How to cancel your credit card?
For those who determine that canceling their credit card is the right course of action, learning how to go about this can be beneficial. There are three primary steps to keep in mind as you look at when to close a credit card:
1. Payoff the balance
First and foremost, you must pay off any and all balances that are outstanding on the card, otherwise you will owe the card issuer money. For larger amounts of debt, take the time to save up funds in order to make a lump sum payment on everything you have outstanding.
2. Check your credit rewards
Before cancelling your account, check if you have any credit card rewards outstanding which could be redeemed before they are lost due to closing the account.
3. Contact the credit card issuer
Finally, contact your credit card issuer and inform them of your decision to close the credit card account. Whether you call them or contact them online doesn’t matter, so long as you receive confirmation that the account is going to be closed.
When does it make sense to keep an unused credit card?
For the majority of people, it will always make sense to keep an unused credit card account so long as it has a minimal annual fee and is contributing positively to your credit score. Particularly, the answer to whether I should close credit cards I don’t use should be no if the account is your oldest or if it will negatively impact your credit utilization ratio.
In looking at the question of whether you should cancel unused credit cards, many people wonder whether or not their credit history will be impacted if they go through with the closure. The answer is always yes, but the extent to which your history is impacted depends on the age of the account and its activity. Generally, a credit card company may automatically close your credit card account if there are as few as a couple of months of inactivity on the card. When considering the question of whether I should close old credit cards, the answer is no so long as it doesn’t have a high annual fee and contributes positively to your credit history. No, it is not bad to let a credit card go unused unless there is a massive annual fee or if you have a major outstanding balance on the card that you are carrying month-over-month.
In looking at the question of whether you should cancel unused credit cards, many people wonder whether or not their credit history will be impacted if they go through with the closure. The answer is always yes, but the extent to which your history is impacted depends on the age of the account and its activity.
Generally, a credit card company may automatically close your credit card account if there are as few as a couple of months of inactivity on the card.
When considering the question of whether I should close old credit cards, the answer is no so long as it doesn’t have a high annual fee and contributes positively to your credit history.
No, it is not bad to let a credit card go unused unless there is a massive annual fee or if you have a major outstanding balance on the card that you are carrying month-over-month.