When You Should Close Unused Credit Cards And When Not To

In the United States, credit cards are the most common way to borrow money. Every year, credit card companies come out with new cards that have sign-up bonuses, rewards, and annual fees that are more appealing.

As you get more credit cards, you might wonder if you should close the ones you don’t use.

If you don’t use your credit cards, you might not know if you should keep them or throw them away. The answer may be more complicated than you think.

Read on to find out what happens to your credit score when you don’t use your credit cards and what you can do about it.

Read more: See the best credit card bonuses here…

How An Unused Credit Card Affects Your Credit

There are two things to keep in mind when it comes to how unused credit cards and credit cards in general affect your credit score: credit utilization and the age of accounts.

Credit Utilization

Credit utilization is the ratio of how much revolving debt you have to how much total credit you have.

A credit utilization ratio is a way to show this as a percentage. Leaving credit cards open that you don’t use can raise your credit limits, which can lower how much of your total credit you’re using.

A high credit utilization ratio can tell lenders that you are likely to go over your credit limits, even though you have the same amount of debt as when you had two open credit cards.

Credit bureaus put a lot of weight on how you use your credit when figuring out your overall credit score. In fact, your credit utilization ratio makes up 30% of your overall FICO score, which is the most common credit score used by lenders.

Most credit experts say that if you want to improve your credit, you should keep your credit utilization ratio under 30%.

The Average Age Of Accounts

The average age of your accounts is also an important part of your credit score.

Creditors like to see that you can keep lines of credit open for a long time. This shows that you can handle the responsibilities of credit.

People think you are a responsible borrower if the average age of your accounts is high. On the other hand, if the average age of your accounts is low, it could mean you tend to make credit and money decisions quickly.

Even though the average age of your accounts only makes up about 15% of your FICO score, it can be a factor in whether or not lenders think you can handle credit responsibly.

Keep your oldest credit accounts open if you want to make your average age of accounts longer.

Why It’s Better To Keep Credit Cards You Don’t Use

Cancelling credit cards you don’t use may seem like a good financial move, but it will hurt your credit score more than if you just kept them and didn’t use them.

Keeping old, unused credit cards can help improve parts of your credit that make up as much as 45% of your FICO score.

• Displays good credit management. If you have a line of credit open but you don’t use it, this will show credit bureaus and lenders that you are capable of having access to credit without using it all.
• A way to improve your credit score. Assuming that the credit card is older and uses little of its available credit, unused cards are an easy way to increase the average age of your credit and decrease your credit utilization ratio.
• Increases the average age of your accounts. This proves to the credit bureaus that you can maintain good credit habits over the long term.

Read more: 6 Surefire Ways to Improve Your Credit Score, Rebuild Credit

Alternatives To Canceling Your Unused Credit Cards

Cancelling credit card accounts you don’t use can hurt your credit score, which can make it harder for you to get low-interest rates in the future. If you decide to keep your unused credit cards, you don’t have to pay fees or spend more than you should.

Dispose Of The Card

If you don’t have the card, you can’t use it. If you tend to spend more than you have, cutting up your old credit card can keep your credit line open and keep you from spending all your money.

Just keep an eye on what’s going on with the account. If you don’t keep a close eye on what happens with your credit cards, you could have your identity stolen if you don’t use them.

Make A Deal With Your Credit Card Company

If you’re thinking about canceling your card because of high interest rates or annual fees, you might be able to negotiate with the credit card company to get the fee waived or the interest rate lowered.

Companies that issue credit cards want to keep you as a customer. This means that if it means keeping you as a customer, they are willing to work with you on the small print of your card. Some credit card companies might waive a fee or lower your interest rate if you don’t want to close the card.

You might also be able to switch to a card with no annual fee.

Reasons To Close Your Unused Credit Cards

Keeping credit cards you don’t use open can help your credit score, but there are times when it might make more sense to close the card.

Here are some reasons why you might want to close your credit card account.

Store Credit Cards

All of us have been there. The store clerk asks if you’d like to sign up for a store credit card and save X dollars on your purchase today. You’re not the only one who signed up for a store’s credit card to get this discount.

But that discount is probably the best thing you’ll ever get from this card, so there’s not much reason to keep it.

Most of the time, closing store credit cards won’t do much to hurt your credit score. Because these are small retail cards and not cards from big companies, credit bureaus usually rate them very low on credit utilization scales.

It’s better to close these cards and take the small hit to your credit score.

High Annual Fee Credit Cards

If the credit card you want to close has a high annual fee, you should probably just close it. Some cards just aren’t worth the high fees they charge.

If you can’t get the credit card company to waive the fee or downgrade you to a card with no fees, you should just close the card.

How To Cancel An Unused Credit Card

If you decide to close your credit card but keep it, you will need to do the following:

First, Pay Off Your Balance

It goes without saying that if you still owe money on your credit card, the company that gave you the card won’t let you close the account.

Before you cancel your credit card, the first thing you need to do is make sure you’ve paid off the whole balance. If there are any charges that haven’t been posted yet, you’ll have to wait for them to show up and pay for them as well.

If you need to get rid of your card as soon as possible, you might want to look into a balance transfer card.

When you do a balance transfer, you move the money from one card to another. Many credit card companies see this as a way to get to know you so they can keep you as a customer for a long time.

Check with other banks or credit unions to see if any are giving new customers a 0% balance transfer offer.

Switch Your Automatic Payments To A New Card

Setting up automatic payments for things like Netflix or your utilities makes it easier and more convenient to pay your bills.

If you have any automatic payments set up on the card you want to cancel, make sure to move them to a new card or link them to your bank account so they can pull money from there.

If you can’t remember which bills are linked to your card, you can use a subscription tracking app to find out which payments are linked to your card and switch them.

Redeem Unclaimed Rewards/Cash Back

The rewards that come with most credit cards today include cash back, hotel points, airline miles, and more.

Be sure to cash in any rewards you still have on your credit card account before you cancel it. If you don’t use your rewards, the credit card company will throw the good stuff away with the bad.

You’ve worked hard to get those rewards, so don’t quit without using them!

Bottom Line

Closing unused credit cards is a personal decision that should be weighed carefully. On the one hand, closing unused credit cards can help reduce the amount of debt you carry by eliminating the temptation to make unnecessary purchases.

On the other hand, closing an unused credit card without considering its impact on your credit score could have serious long-term consequences.

When determining whether to close an unused credit card, it is essential to consider its effect on your overall credit score. Having a long credit history can boost your credit score significantly. This is because it reflects a history of timely payments and responsible financial management.

A credit card that has been opened and maintained for a long period of time will show up positively on your credit report. Closing it could result in a lower score, making it more difficult to obtain favorable terms on future loans or financing you may need.

In addition, closing an unused account may also have an adverse effect on your credit utilization ratio. This ratio is the percentage of your available credit that you are using.

If your credit utilization ratio is too high, it may bring your credit score down. To calculate it, divide the amount of debt in relation to the total available credit you have.

For example, if you have a credit limit of $5,000 and a current balance of $2,500, your credit utilization ratio would be 50%. As such, closing an unused line of credit would result in a higher utilization ratio, which could have a negative effect on your credit score.

Ultimately, the decision to close an unused credit card depends on your individual financial situation and goals.

READ MORE: SEE THE BEST BANK BONUSES HERE AND THE BEST INVESTING BONUSES HERE.