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You may have heard that hanging onto credit cards can benefit your credit score, even if you haven’t used them in a while. But what if the card you use the least has the highest annual fee? Or if the available balance on a card you just paid down makes it hard to say no to a splurge?Before you cut them up, it’s important to consider whether it’s better to cancel unused credit cards or keep them. Here’s what you need to know.Why You Might Want to Cancel an Unused Credit Card
There are reasons why it could make sense to close a credit card you don’t use. Here are some scenarios in which canceling a card may be the right call:- It’s a secured card. If you no longer need a secured card to build or rebuild your credit, you may want to cancel and get your deposit back or, perhaps, ask the issuer about transitioning to an unsecured card. There are a number of fair credit score cards out there to choose from.
- It’s a store card, and you no longer shop at that retailer. Maybe you got the card back in the day when you were into a particular label, but now it’s a no. If the card has a low limit, as many retail cards do, canceling probably will have a low impact on your credit score.
- The benefits don’t justify the fees. If you’re paying a high annual fee for a card that doesn’t offer rewards you need or use, canceling could be an option worth considering. Or you might choose to ask the issuer if you can switch to a different card with perks that are a better fit.
- It’s a high-interest card you just can’t quit. You paid down the balance, took it out of your wallet and buried it in the back of your sock drawer — and yet you still hear that high-interest card calling your name every time you think about taking a trip or want to buy something online. If you’re worried about getting buried in debt all over again because you lack the discipline to keep saying no, it may be time to negotiate a better interest rate or break up altogether.
- You’re separated or divorced. It’s important to be clear about credit card debt when you’re splitting with a spouse. Experts generally advise getting a credit card in your own name first, then closing all joint accounts. That way, you won’t have to worry about your ex running up bills that you’re still responsible for.
- You suspect credit card fraud. If you spot something questionable on your credit card statement, it’s a good idea to report it to the credit card company right away. If it’s fraud, you and/or the issuer may decide the account should be closed.
Does Canceling a Credit Card Hurt Your Credit?
In some instances, canceling a credit card could hurt your credit. That’s because closing the account can affect a few factors that go into calculating your credit score. It Could Increase Credit Utilization
One of the factors that can move your credit score up or down is your credit utilization ratio (the amount of credit you’re currently using divided by the amount of credit you currently have available). As your credit utilization rises, your credit score typically starts to decrease.So if you close a credit card account — even if it’s one you seldom use — and reduce the amount of credit you have available, you can expect your credit score to drop. If it’s a card with a low credit limit, it may not have much of an effect. But if it’s a card with a large amount of credit available, it could have a more noticeable impact on your score.It Could Impact the Length of Your Credit History
Having a longer credit history can positively impact your credit score, so that can be another factor to weigh before canceling a card. FICO® looks at how long each account you have has been open and the average age of all of your accounts. So, for example, if you close your oldest account, it could have a bigger effect on your score than if you canceled a newer card. It Might Decrease Your Credit Mix
A diverse credit mix can add points to your credit score, so you may want to keep at least one credit card account open all the time. Even if you use the card only occasionally and pay off the balance after each purchase, it can help demonstrate your ability to responsibly manage different types of credit. Recommended: How Many Credit Cards is It Reasonable to Have?Alternatives to Closing a Credit Card
If you’re wondering what to do with an unused credit card that’s more bother than benefit at this point in your life, there are some moves you could consider that might minimize the impact to your credit score. Keep the Card, Lower the Cost
Interest rates and fees may be negotiable, especially if you’ve improved your credit score since you first got the card. If the cost of a card is a factor in your consideration of canceling, you might want to talk to the issuer about whether you now qualify for a lower APR, or if it’s possible to ditch the pricey annual fee without canceling and opening a new account. Keep the Credit, Ditch the Card
If you find a credit card you like and it has the same or a higher credit limit than the one you want to cancel, you could consider applying and adding the new card to your wallet. Then, you can close the other account without disturbing your credit utilization ratio or credit mix. Change the Card, Improve the Perks
If your spending habits have changed, and you seldom if ever use the benefits offered by your old rewards card, you may want to look for one that better suits your current needs. You can explore credit card options to find one that does more for you.Keep the Card, Manage the Aggravation
Sometimes simply managing the payments (or lack of payments) on a seldom-used card can become a burden. If that’s your problem, you might consider putting a small recurring charge on the card (a subscription service, for example). Then set up autopay for the card so you don’t forget about the bill. That way, you can keep the card active (which can be good for your credit score), but you don’t have to worry about missed payments (which can hurt your score).When It Makes Sense to Keep an Unused Credit Card
Timing also can be a factor when deciding if it’s better to cancel unused credit cards or keep them. If, for example, you plan to apply for a mortgage or some other type of loan that might require a credit check, you may want to avoid taking any action that might cause your credit score to go down — even if it’s a small, temporary reduction. Remember, the higher your score, the more options you’ll have when it comes to borrowing, and that can include better interest rates and other loan terms.Even if you don’t see a new loan in your future, you may want to review your credit reports, identify the cards that might be helping or hurting your score and work out a plan for managing them to your advantage. You can get a free credit report annually from each of the three major credit reporting bureaus at the government-authorized site AnnualCreditReport.com.How to Safely Cancel a Credit Card
If you decide it makes sense to cancel a credit card, here are some steps you can take to make sure you’re protected.Check Your Rewards Balance
Review your credit card agreement to ensure you get the most out of any remaining points before you cancel a rewards card. Minimize Other Credit Card Balances
If you can pay down or reduce your other credit card balances, it could help limit any negative impact to your credit utilization ratio when you close an account. Contact the Credit Card Issuer
You may be able to cancel the card by logging into your account online and opening a live chat. Or, if it’s a bank-issued card, you could go to your local branch. You also can simply call the card issuer using the number on the back of your card. The issuer may offer to make some changes to the account to keep you on board, so you should be ready for that. Confirm that your account balance is $0 (either because you’ve paid off the card or transferred the balance), and be sure to confirm the cancellation.Follow Up in Writing
Even though you’ve spoken to someone about canceling, you might want to send a certified letter to request written confirmation that the account balance is $0 and the account is canceled. Destroy the Card
By cutting up or shredding the card, you can ensure that you won’t use it again by accident and, more importantly, you won’t have to worry about someone else finding it and using it fraudulently. Keep an Eye on Account Statements
Transactions may still show up after you’ve closed the account, so it’s a good idea to read your credit card statement even after you’ve closed the account. Follow up with the card issuer if necessary. Monitor Credit Reports
You also may want to check your credit reports after four to six weeks to ensure that all information related to the closed account is accurate. That way, if there are errors, you can move quickly to dispute them. Recommended: How Long to Keep Credit Card StatementsThe Takeaway
Keeping a credit card account open, even if you seldom use the card, can be a useful way to help manage your credit score. But if a card has an expensive annual fee, a high interest rate or it just doesn’t meet your needs anymore, it may be worth weighing the pros and cons of holding on to it. If you aren’t sure how your credit cards stack up against others that are available, a comparison site like Lantern can help. You can use Lantern to evaluate multiple credit card offers and decide what’s best for you. Photo credit: iStock/Farknot_Architect
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About the Author
Kim Franke-Folstad
Kim Franke-Folstad is an award-winning journalist with 30 years of experience writing and editing for newspapers, magazines and websites. Her work for SoFi covers a range of topics related to personal finance, including budgeting, saving, borrowing, and investing. 
