If you have an old credit card sitting in the back of your wallet that you haven't swiped in years, you're probably familiar with the temptation to close a credit card. But closing an unused credit card account isn't always the best move.
In fact, unless the credit card comes with an annual fee, most experts will tell you to just leave the account open. But there are few one-size-fits-all answers when it comes to personal finance. And the question of should you close an unused credit card, or just continue to ignore it, isn't cut and dry.
Valid arguments exist for both sides of the debate. Closing a credit card can certainly hurt your score, but strategic planning can limit any damage. Closing an unused credit card could also be the right move if you're struggling to manage your credit card debt.
When you should close unused credit cards
Although closing an unused credit card can hurt your credit score if you're not careful, some circ*mstances make it worthwhile anyway.
One major reason for closing an unused credit card is if that card comes with a pricey annual fee. That's not to say that all cards with an annual fee are bad -- they can be quite valuable when you make the most of them. But if you're not using the card, why are you paying for it?
Another time you may consider closing an unused credit card is if you simply don't want the temptation it represents. Every credit card you have is more credit card debt you could take on. If you struggle with managing debt, you may want to eliminate any cards you don't absolutely need.
Closing an unused credit card isn't always your decision
It's also worth noting that if you don't use a credit card for a certain length of time, the credit card issuer may close your account on its own. So, if you really don't want your unused credit cards to be closed, it's a good idea to use them for a small purchase on occasion.
Closing an unused credit card without hurting your score
Depending on your situation, you may be able to close an unused credit card without impacting your credit score. For example, if you have multiple credit cards with the same issuer, it may let you transfer your credit limit from a closed card over to your remaining card.
Consider this hypothetical: You have two credit cards with the same issuer, one with no annual fee and a $3,000 credit limit, and one with an annual fee and a $5,000 credit limit. You want to close the card with the annual fee to save money. You can request that your issuer transfer the $5,000 credit limit to your other card before closing the account. That way you end up with a single credit card with an $8,000 limit.
Transferring your credit limit to another card conserves your total available credit, which keeps your utilization rate the same. However, keep the "length of credit history" category in mind. If the card you close isn't one of your oldest accounts, this can help your credit score remain the same after you close an unused credit card.
That being said, if the main reason you're thinking of closing an unused credit card is the annual fee, you may have other options. First, try negotiating with your issuer to waive the annual fee. Depending on how long you've had the account -- and how much the issuer wants to keep your business -- you may get a waived or reduced annual fee.
Alternatively, see if you can downgrade the card. Most cards with a high annual fee will have a lower-fee card with similar perks and rewards, and your credit card issuer may let you transform your expensive card into something more affordable.
The reasons to leave your card account open
Your credit score is calculated based on five factors. Two of those factors can be directly affected by closing an unused credit card:
- Length of credit history
- Credit utilization ratio
We'll look at each of these below.
Length of credit history
Length of credit history is basically how long you've been using credit cards, and it makes up 15% of your FICO® Score. More specifically, it's influenced by the age of your oldest account (the older the better), the age of your newest account (again, older is better), and the average age of all your accounts combined, among other time-related factors.
Closing an unused credit card causes that account to stop aging, which can negatively affect your average account age and hurt your credit. If the account you close is one of your oldest accounts, that damage can be even worse.
Credit utilization ratio
Your credit utilization ratio can be even more important than the length of your credit history. It's the portion of your available credit you're currently using -- how close you are to maxing out your credit cards. This is part of the "amounts owed" category of the FICO® Score formula, which is responsible for 30% of your FICO® Score.
Your utilization rate takes into account your debt-to-credit ratio across all accounts and your individual credit card balances as compared to their limits. Most experts recommend keeping these ratios below 30%, but the lower, the better.
Unused credit cards boost your credit score by reducing your credit utilization ratio. Let's look at an example of a person's hypothetical credit utilization ratio before and after closing an unused credit card with a $0 balance and $5,000 limit.
| Total Available Credit | Total Balances | Utilization Rate | |
|---|---|---|---|
| Before closing unused card | $20,000 | $5,000 | 25% |
| After closing unused card | $15,000 | $5,000 | 33% |
As you can see, in this example, closing an unused credit card caused the credit utilization ratio to rise above the 30% threshold even though they don't owe a penny more than they did before. This would likely result in a lower credit score.
Still have questions?
Here are some other questions we've answered:
- How to Close a Credit Card Without Hurting Your Credit Score
- If I Pay Off a Credit Card, Will My Credit Score Change?
- How to Rebuild Your Credit
FAQs
In most situations, it's better to keep unused credit card accounts open, as closing credit accounts can have a negative impact on your credit score. However, there are a few situations where canceling an unused credit card can be a smart idea, such as when the card has an annual fee or if you're having trouble keeping your debts under control and you want to remove the possibility of taking on more debt.
Closing an unused credit card will typically cause your credit score to go down, at least in the short run. There are two reasons. First, the length of your credit history (including the average ages of your credit accounts) is a factor in all major credit scoring formulas. Second, eliminating an unused credit line can raise your credit utilization if you have balances on other accounts, which is one of the biggest credit scoring factors.
Our Credit Cards Experts
By:Brittney Myers
Writer
Brittney started her writing career in the world of science, putting her physics degree to good use. Her journey into finance started with building her personal credit, but soon grew into a borderline obsession with credit cards and travel rewards. For the last 7 years, she has enjoyed the ability to share her expertise with readers, as well as the opportunity to interview companies and individuals making an impact on our financial lives. She wholly believe most problems can be solved with the right research -- and a good spreadsheet -- and she specializes in translating complex financial topics into actionable advice to help educate and empower readers.
By:Matt Frankel, CFP®
Writer, Analyst
Matt is a Certified Financial Planner™ and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice for The Ascent and its parent company The Motley Fool, with more than 4,500 published articles and a 2017 SABEW Best in Business award. Matt writes a weekly investment column ("Ask a Fool") that is syndicated in USA Today, and his work has been regularly featured on CNBC, Fox Business, MSN Money, and many other major outlets. He’s a graduate of the University of South Carolina and Nova Southeastern University, and holds a graduate certificate in financial planning from Florida State University.
Fact CheckedEric McWhinnie
Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.
