Canceling an unused credit card could affect your credit. The credit limit on that unused card is part of your total available credit, and since you’re not using it, it can help to keep your credit utilization low.
If your unused card has been with you for some time, closing it could shorten your credit history. Longer credit history is a positive influence on your credit.
Canceling an unused credit card may be a good idea if the unused card has a high annual fee, if you need to control your spending, or if the card is relatively new. If you do decide to cancel a card, be sure the cancelation is complete and the card is fully paid and destroyed.
Should You Keep That Card or Cancel It?
If you’re considering applying for new credit soon, especially a major loan like a mortgage or car loan, you might decide to avoid canceling cards. Your credit could be affected and that could make it harder to get a good deal on your new loan.
Before you cancel a card, check your credit report. It will tell you how long you’ve had each account. Avoid canceling your oldest card.
Calculate your average credit utilization ratio. Your utilization rate will vary from month to month as the size of your balance changes, but you can get a sense of where your utilization usually stands. If your unused card is helping you to keep your credit utilization below 30%, consider keeping it.
If you’re worried about the temptation to use a card, consider keeping it in a safe deposit box or another location where you can’t get to it easily.
There are times when it makes sense to cancel a card. If a card that you’re not using has a high annual fee, that’s a sound reason to cancel. If a card is relatively new, canceling it will not have a large impact on the length of your credit history. If canceling a card is the only way to keep yourself from spending more than you can afford to pay, that’s a good reason to cancel.
Your Unused Card Can Affect Your Credit
Your unused credit card can affect your credit by lowering your credit utilization rate and by extending your credit history.
Your credit utilization rate is the percentage of your available credit that you actually use. The credit limit on every active card you own is part of your available credit, whether you use the card or not.
For example, if you have a card that you use with a $3000 limit and a card that you don’t use with a $2000 limit, your total available credit is $5000. If you have $1500 in charges, your credit utilization rate is 30%. If you cancel that unused card, your credit utilization will jump to 50%.
Credit utilization is an important component of your credit. Most experts advise keeping your credit utilization rate below 30%. Keeping your unused card active will make that easier to do.
The length of your credit history also affects your credit. A longer credit history indicates more experience with managing debt and is a positive influence on your credit. Canceling an old card can shorten your credit history, especially if it was your first card.
How to Cancel a Credit Card
If you do decide to cancel a credit card, don’t just stop using a card or cut it up and expect it to close automatically. Contact your issuer and go through the formal closing process. Some steps you may want or need to complete before closing a card include:
- Redeem any remaining rewards on your card.
- Be sure that any balance left on the card is paid, including interest accrued during the closing process. Even a small unpaid balance could end up as a collection account, which could do serious damage to your credit.
- If you can’t pay the balance all at once, ask your issuer to close the card to new charges while you pay it off.
- If you have other cards from the same issuer, ask if they will transfer the limit on the card you’re closing to the cards you’re keeping. If they agree, your credit utilization will remain the same.
- Follow the issuer’s process for closing an account. You should receive an account closing confirmation letter. If you don’t get a confirmation letter, follow up with the issuer and confirm that the account is closed.
- Avoid closing several accounts at the same time. If you have decided to close several cards, spacing the closures out may reduce the impact on your credit.
- Dispose of your card properly after closure. Identity thieves may still be able to recover your information from a canceled card.
- Always check your credit report after closing an account. Confirm that the closure is reflected in your report and that no outstanding debts are listed.
Closing a credit card might seem like a sensible thing to do, especially if you’re having trouble managing your credit card spending. You should consider the possible impact on your credit score before you decide to close a card. If you do decide to close a card, be sure the closure is complete, the card is destroyed, and all outstanding balances are paid.