Should you cancel an unused credit card?

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If you’re a cardholder who’s looking for a card upgrade or you’ve already moved onto a new one, you may be wondering what to do with your old card. Your new card is better, so why not just do away with its predecessor?

Canceling a credit card will cause a direct hit to your credit score, so more often than not you’ll want to keep the account open. Correctly managing an open, rarely-used account may require some extra attention, but the added effort will help your credit in the long run. Conversely, negligence with an open account could lead to financial turmoil because your credit score may decrease with card inactivity, so preparing yourself on how to maintain your unused card accounts is a must.

Why you shouldn’t cancel unused credit cards

Keeping an old credit account active may seem like a meaningless task, but doing so can boost your credit score for several reasons. According to FICO’s estimated model, your score is made up of and weighted as follows:

  • Payment history: The most important factor of a credit score, your timeliness of payments will be a focus of credit issuers (35%)
  • Credit utilization ratio: Typically shown as a percentage, this figure represents the balance of your accounts compared to your total available credit limit (30%)
  • Length of credit history: The average age of each of your credit accounts (15%)
  • Recent credit activity: Applications for credit will appear as inquiries on your credit report, as well as whether accounts have gone delinquent and other activity in the past 3 to 6 months (10%)
  • Credit mix: A variety in the different types of credit accounts you have can boost your score (10%)

Maintaining your old credit card account can set you up for success in every single one of these categories. By making small payments every so often to keep the account active, you’ll be balancing your credit utilization ratio (low activity is better than no activity), maintaining a broad credit mix and extending the age of your credit accounts — all good things for your credit score. On the other hand, an inactive card means your payment history is hurting. If you stop using the card altogether, there’s a chance that your account will be closed (typically after at least 12 months of inactivity). This will appear on your credit report and drop your score, so it’s vital to keep your account active and make the payments needed to keep your account in good standing.

How canceling an unused credit card affects your credit score

Canceling a credit card will instantly drive down your credit score. It may not have a major impact if you have excellent credit, but the effects will be more dramatic for those in the good or average credit range.

When closing an account, your average age of accounts will likely take a hit and your total credit limit will decrease, which will hurt your credit utilization ratio. The general guideline for your utilization is to keep it under 30%, but those with excellent creditworthiness keep it around 10% or less. Additionally, getting rid of this credit account may take away from your mix of credit, another negative on a key factor making up your credit score.

In addition to avoiding the toll on your credit score, having an open account with an old card won’t take away from the benefits of your new one. Set yourself up for success by keeping your credit card active with routine payments to raise your credit score.

What to do with unused credit cards

Keeping an active hands-off credit account can be a blessing to your credit score if you’re able to make the necessary payments.

One easy way to manage an account is to set the card up as payment for a recurring monthly expense such as utility bills, subscriptions or streaming services. By setting up automated payments with your issuer to pay off this balance in full each month, you’ll improve your credit utilization ratio, the average age of your accounts and set a trend of on-time, in-full payments. Putting the card away and setting reminders to spend occasionally can be another way to boost your score, just be sure to enable automated payments to cover the balance each month.

When you should cancel an unused credit card

If you have an unused card and your credit issuer has sent you a notice that your card is going to close due to inactivity, make a payment to keep the account open to buy you time to weigh your options. If your bank has already deactivated the account, contact them to see if you can negotiate — they’re likely open to the idea of keeping a customer’s account active.

Closing a card typically comes with negative side effects, so there are few occasions when you should. One of the most common cases for canceling a credit card is if the card calls for an annual fee. If the yearly fee isn’t worth the positive impact of keeping an open credit account, you should cancel. Also, if the ease of swiping a credit card sends your spending habits out of control, reevaluate being a cardholder. If your credit card is causing extraordinary financial stress, cut ties with the card.

With no annual fee cards and most other scenarios, you’ll be better off keeping your account open and active. Maintaining the account can be hands-free and will help your financial health.

How to cancel your credit card

Ultimately the decision is up to you, but be mindful that there are specific steps to take when closing a credit card and some financially-savvy tips to consider.

  • Pay off the balance: If you try to cancel a card with a balance, the issuer could raise your interest rate to the maximum allowable by law as a penalty for closing the account.
  • Contact the issuer: Call the number on your monthly statement, confirm that your balance is zero and notify the representative that you’re canceling the card.
  • Follow up with a letter: The letter should say that you’re closing your account and that you want your credit record to reflect that you’ve requested the account be closed.

Most people won’t keep every card they’ve ever opened. So, here are a few recommendations for those times when you must dump a card:

  • Spread out closures over time so that your utilization doesn’t spike.
  • Keep your oldest account open to preserve credit history length.
  • Keep cards with high limits open.
  • Don’t close credit card accounts right before applying for a loan.
Written by
Joey Robinson
Credit cards contributor
Upon graduating with a Bachelor’s degree concentrated in Finance, Joey worked at “Big Four” (Ernst and Young) accounting firm before exploring the world of credit cards. Over the past two years, he’s shared his expertise and has brought understanding to complex topics as a writer and editor for sites like Bankrate, and NextAdvisor. His advice on avoiding common credit card fees, top balance transfer tactics and more financial tips have been featured on MSN Money and other various news publications.