Should You Cancel Unused Credit Cards?

If you have too many credit cards, you might be wondering whether you should cancel your unused credit cards? This post provides you with everything you need to know about canceling unused credit cards.

Should You Cancel Unused Credit Cards?

You should not cancel unused credit cards because canceling them could cause your credit score to drop. Canceling your credit card could cause a credit score drop because it may increase your credit utilization, reduce your credit mix, and reduce your average account age. We will now explain the reasons why you should not cancel credit cards even if you do not use them in more detail below.

Canceling an unused credit card could increase your credit utilization because when you close a credit card account, you’re losing the credit limit associated with your account. If you carry balances on your credit cards, you will increase your credit utilization. An increase in credit utilization can potentially lower your credit score.

Your credit utilization (how much of your available credit you’re using) accounts for 30% of your credit score. The lower your credit utilization, the better the impact of this factor will be on your credit score.

For example, if you have 2 credit cards, one credit card with a $10,000 credit limits and a second credit card with a $5,000 credit limit. If you have a balance of $3,000 on your first credit card and a $0 balance on your second credit, you’re utilizing 20% of your total available credit. However, if you close your second credit card with a $5,000 limit, you will now be utilizing 30% of your total available credit, which can significantly lower your credit score.

As a rule of thumb, you should strive to keep your credit utilization as low as possible for the best impact on your credit score. Experts agree that you should keep your credit utilization below 10% and never exceed 30% credit utilization. Using more than 30% of your available credit will cause a significant drop in your credit score.

The second reason you should not cancel or close an unused credit card is that it has the potential to reduce your credit mix, also known as the diversity of your accounts. If this is your only credit card, closing it could reduce your credit mix. Your credit mix accounts for 10% of your credit score, so closing a credit card account can potentially reduce your mix of credit, lowering your credit score. So, for the best impact on your credit score, you should avoid closing unused credit cards.

The third reason you should avoid closing an unused credit card is that it can reduce the average age of your accounts. The average age of all of your accounts makes up 15% of your credit score. So, the older your accounts, the better of an impact this factor will have on your credit score. Closing down a credit card reduces the average age of your accounts. So, for the best impact on your credit score, you should keep old accounts open for longer, especially if they have a positive payment history associated with them.

Conclusion – Keeping your old credit card accounts open by charging small amounts on them and making payments in full can do wonders for your credit score because it allows you to keep your credit utilization low, it diversifies the types of accounts that you have, and it contributes to an older account age. These are all great things for your credit score.

CSP Pro Tip – If you have a credit card that you rarely use, you should use it for small purchases and make payments on it to avoid having the account shut down for being dormant.

How Does Cancelling An Unused Credit Card Affect Your Credit Score?

Cancelling an unused credit card or credit card that you rarely use can negatively affect your credit score for a number of reasons.

First, canceling an unused credit card can result in a higher credit utilization (how much of your total available credit you’re using). Higher credit utilization can lower your credit score, especially if closing your credit card results in a credit utilization of 30% or more. As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. Exceeding 30% credit utilization can significantly lower your credit score. So, consider whether closing your credit card would increase your credit utilization prior to closing your account.

Second, closing an unused credit card can slightly lower your credit score because it may reduce the diversity of your account. Your credit diversity, also known as credit mix, accounts for 10% of your credit score. Whenever you close an account, you can potentially reduce the diversity of your accounts, lowering your credit score. So, if this is your only credit card, you should avoid closing it for your credit mix factor to have the best impact on your credit score.

Third, canceling an unused credit card will reduce the overall age of your accounts. Your account age makes up 15% of your credit score. The older your accounts, the better this factor will impact your credit score. So, to increase your account, you should keep old accounts that are in good standing open for longer, meaning you shouldn’t close your credit card account for this impact on your credit score.

What Should You Do With Your Unused Credit Card Instead of Cancelling It?

If you have an unused credit card and you’re debating whether to keep your credit card open or close it, we will share some things that you can do with your unused credit card instead of cancelling it.

The best way to make use of a rarely used credit card is to use it as a card for making some of your monthly recurring payments. For example, you can use it to make automatic monthly payments for your cell phone bill, Netflix subscription, cable subscription, and other recurring monthly bills. This keeps your account active and avoids having the account being canceled by your card issuer for being dormant (unused).

That said, make sure to set up payment reminders to make your credit card payments on time. Missing even a single payment on your credit card account can cause significant damage to your credit score. Continuing to use your credit card responsibly and making on-time payments will further boost your credit score.

When Does It Make Sense To Cancel An Unused Credit Card?

It makes sense to cancel an unused credit card if you’re paying a high annual fee on your credit card and you’re not taking full advantage of the perks and rewards offered by your credit card. That said, you should keep the negative consequences to your credit score in mind before closing an unused credit card.

For example, if you know that you’re going to be making a large purchase, such as buying a home or financing a vehicle in the near future, you should hold off on canceling your unused credit card as it will likely cause a drop in your credit score. After making your purchase, then close the credit card if you see that’s the correct course of action.

How to Properly Cancel and Close Unused Credit Card Accounts?

If you’ve determined that closing your credit card is something that you want to do, here is how you can properly close your credit card account so you don’t run into any trouble.

  1. Cancel all of the automatic payments being charged onto your account
  2. Pay off the balance on your credit card, leaving a $0 balance on the card
  3. Contact your credit card issuer and confirm that the balance on your credit card is at $0
  4. Ask them to cancel the credit card
  5. Ask your card issuer to follow up with a letter or email confirming that the account has been closed with a $0 balance

CSP Pro Tip – If you want to cancel multiple credit cards, it’s best if you do not cancel all of them within a short period of time, space out the closure over a course of several months. This will help you avoid a large increase in your credit utilization. You should keep credit cards with high limits open so that you can benefit from a low credit utilization rate.

Closing An Unused Credit Card Without Hurting Your Credit Score

There is a way to cancel an unused credit card without hurting your credit score, but for this method to work, you must have two credit cards with the same card issuer. For example, if you have two Bank of America Credit Cards, and for some reason, you want to close one of your accounts, you can ask your financial institution to transfer over the credit line from one of your cards to the other card.

This prevents the closure of your account from increasing your credit utilization since you’re shifting the credit limit that would have been lost to another credit card.

For example, if you have two credit cards with Bank of America, one with a $5,000 credit limit and a second card with a $4,000 credit limit. You can ask them to transfer over your $4,000 credit limit to your credit card with a $5,000 credit limit, giving you a total of $9,000 credit limit on a single credit card after canceling the second card. This way there will be no increase in your credit utilization.

The Bottom Line

For the best impact on your credit score, you should keep old credit cards open. You should avoid closing them to keep your credit score as high as possible. This is especially true if you plan on making major purchases in the near future, such as financing a vehicle or even taking out a loan to buy a home. So, consider the consequences of closing an unused credit card vs the benefits, and then make your decision. If you have any general questions or comments, please feel free to leave them in the comments section below.

Frequently Asked Questions (FAQs)

1. Why should you avoid canceling unused credit cards?

You should avoid cancelling unused credit cards because it can potentially increase your credit utilization, reduce your credit mix, and reduce the overall age of your accounts, which can all lower your credit score. For the best impact to your credit score, you should keep old account even if they’re not used very often open.

2. Do unused credit cards affect your credit score?

Yes, unused accounts in good standing can positively affect your credit score. So, even if you rarely use them, you should keep them open for the best impact to your credit score.

3. Is it bad to have a credit card that you rarely use?

There is nothing wrong with having a credit card that you rarely use. However, you should keep in mind that if you do not use your credit card for a long period of time, your card issuer may consider the account as dormant, and may therefore either lower your credit limit or close your credit card.

4. What is the major disadvantage of closing an unused credit card?

The major disadvantage of closing a credit card is that it can potentially increase the amount of total available credit that you’re using, lowering your credit score.