Should You Cancel Your Unused Credit Cards or Keep Them?
Quick Answer
- Generally, it’s best to keep unused credit cards open by making small purchases at least once every three months.
- Closing a credit card could increase your credit utilization and shorten your credit history, hurting your credit scores.
- If you no longer want to be tempted to use a card, hide it somewhere secure.
You should generally keep unused credit cards open, as they can help your credit utilization ratio and lengthen your overall credit history. But there are times when canceling a credit card can make sense, despite the potential impact to your credit.
If your unused card has an annual fee you can no longer afford, you're concerned about controlling your spending or the account you want to close is relatively new, canceling a card could be a worthwhile option.
Here are the basics to know before you cancel an unused credit card.
Why It's Usually Best to Keep Unused Credit Cards Open
To avoid potential damage to your credit scores, plan to keep credit card accounts open, even if it's been a while since you've used them regularly. Here are three reasons it's generally best to avoid closing a credit card.
Lower Credit Utilization
Canceling a credit card means immediately losing access to that card's credit limit, which will lower your overall available credit. As a result, any credit card balances you currently have will account for a larger percentage of your (now reduced) available credit. This means you'll have a higher total credit utilization, which can account for 20% to 30% of your score, depending on the type of credit scoring model you're viewing.
Example: Say you have two credit cards with credit limits of $5,000 each. One credit card you're actively using and has a $2,000 balance. The other hasn't been in circulation for a while and has a $0 balance. Your total credit limit is $10,000, and your total utilization is 20%. If you close the card you're no longer using, you lose its $5,000 credit limit. With a $2,000 balance, your credit utilization will now double, to 40%.
Higher Total Credit Limit
Having a higher total credit limit will make it easier to reduce your credit utilization, which is one of the key ways to strengthen your credit scores.
When your credit utilization rate grows beyond 30%, it can do more serious damage to your credit. But your credit scores will benefit the most from a credit utilization rate of less than 10%. With a higher credit limit, you not only get more purchasing power, but you can run up a higher balance and still use less of your available credit.
Let's take our example above. With a $10,000 credit limit, it's ideal to charge no more than $1,000 across both cards at any time. With a $5,000 credit limit, you'd be limited to $500 in charges to keep credit utilization at or below 10%.
Longer Credit History
When you close a credit card account, the average age of your accounts will eventually decrease, which can negatively affect your credit scores. That's because length of credit history makes up 15% of your FICO® ScoreΘ, and the more years of responsible credit management you can demonstrate, the more likely potential lenders may be to approve you for credit.
The effect can be particularly drastic if you close your oldest credit card account. In this case, not only will the average age of your accounts decrease, but you'll lose your longest-running account, which can have an additional negative impact on your FICO® Score.
Note, however, that an account closed in good standing can stay on your credit report for 10 years, so you'll still benefit from the account's on-time payment history after it's canceled—at least for a time.
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When Does It Make Sense to Keep an Unused Credit Card?
Consider keeping an unused card open especially in the following circumstances:
- You're planning to apply for a mortgage. Before and during the mortgage application process, your goal will be to keep your credit scores as high as possible. Since canceling a credit card can lead to a drop in your scores, keep your current accounts open and in good standing until you've successfully secured a loan.
- There's no annual fee. If you're not paying an annual fee, you can continue to benefit from higher credit utilization and a longer average age of accounts if you leave the account open. If you're concerned about overspending, put the card in a place that's hard to access and don't make the card number easily discoverable.
- You can reliably make small payments and pay them off right away. To keep a card active, the best approach is often to use it occasionally, or to put a small recurring bill—such as a streaming service payment—on the card and pay it off with autopay each month. Otherwise, the issuer may close the unused card, sometimes without much notice.
When to Cancel an Unused Credit Card
Despite the credit consequences, closing a credit card can make sense when:
- The card has a high annual fee. If you can no longer afford to pay the card's annual fee, or you're not using it enough to justify the fee, consider contacting the issuer to downgrade the account to a no-fee version. In the event that's not available, closing the account is a sensible way to make room in your budget, despite the credit impact.
- You recently opened the account. Canceling a newer account—one opened in the past few months, for example—will likely have a more limited effect on your credit scores when the account is eventually removed from your credit report.
- You want to dramatically reduce spending. If it's difficult to control your spending and closing the account seems like the only way to appropriately manage your finances, doing so could be worth the short-term credit impact.
How to Cancel a Credit Card
To cancel a credit card, make sure the account is in good standing and take care to move any recurring payments to a different card before closing it. Here are the steps to take:
- Pay off any remaining balance on the card. To ensure you close the card in good standing, bring the balance to zero and make all final payments on time.
- Use or transfer remaining rewards. If you have unredeemed rewards on the card, like cash back or points, you'll most likely lose them when you cancel the card. Before closing the account, redeem outstanding rewards. You can receive cash back as a deposit to your bank account, for example, and transfer points or miles to credit card partners such as hotel or airline loyalty programs.
- Set up autopay for recurring payments on a different credit card. Move any recurring payments for utilities or services to a different credit card or payment method. Doing so early in the process will help you avoid late or missed payments.
- Request to cancel the card with the issuer. You may have the option to call customer service, chat live with the credit card issuer or log in to your online account to request that it close the account.
- Destroy the credit card. Your personal data could be at risk if someone finds or steals the physical card. To prevent credit card fraud, shred or cut up the card, and if it's metal, ask the issuer for a prepaid envelope that you can return the card in. You can also drop off the card in person if the issuer has physical bank branches.
Frequently Asked Questions
The Bottom Line
Keeping credit card accounts open for as long as possible is a smart strategy for building and maintaining good credit, especially if you're planning to apply for new credit in the near future. Evaluate the age of the account and its credit limit before closing it, but take stock of your spending habits and any fees associated with the card too.
Every financial decision is a personal one. While keeping unused accounts open is generally best, you might find that closing one is the better choice for you.
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About the author
Brianna McGurran
Brianna McGurran is a freelance journalist and writing teacher based in Brooklyn, New York. Most recently, she was a staff writer and spokesperson at the personal finance website NerdWallet, where she wrote "Ask Brianna," a financial advice column syndicated by the Associated Press.
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