The decision to close an unused credit card may seem straightforward, but failing to consider its impact on your credit score can result in unforeseen consequences.
At a Glance
- Closing an unused credit card affects credit utilization and the average age of accounts, impacting your FICO® Score.
- 30% of your FICO® Score is influenced by credit utilization.
- The length of your credit history, affected when closing older accounts, contributes 15% to your credit score.
- Consider keeping unused cards for future credit needs or if there’s no annual fee.
Understanding the Credit Score Impact
Closing an unused credit card can influence key aspects of your FICO® score. Credit utilization, which accounts for 30% of your score, increases if your total available credit decreases after closure. Therefore, maintaining lower credit utilization is beneficial. Additionally, the length of your credit history contributes 15% to your score, meaning older accounts often boost your profile. Closing one of these can reduce your average account age, thereby impacting your score.
Despite these considerations, sometimes closing a card makes sense, such as when an unused card has an annual fee or managing multiple credit accounts is overwhelming. A well-informed decision should include assessing both the pros and cons specific to your financial situation.
Taking Steps for a Judicious Decision
Before canceling a credit card, review your credit history, evaluate available credit, and align your actions with financial goals. Keeping unused cards open is generally advisable when planning large purchases, applying for a mortgage, or if there’s no annual fee. If a card is indeed unnecessary, steps for cancellation include paying off the balance, removing recurring charges, confirming with the issuer, and destroying the physical card.
“Every financial decision is a personal one,” said Brianna McGurran.
Regularly using the card for small purchases and setting automatic payments can prevent involuntary closure. Many experts suggest utilizing under 30% of your available credit to maintain a healthy score, highlighting the importance of thoughtful credit management.
Evaluating Personal and General Credit Practices
Assessing the impact of closing an unused credit card requires consideration of account age and credit limit. Consumer credit advice generally favors keeping accounts open to maintain a robust credit profile, barring specific personal financial objectives that recommend otherwise. A balance between the number of active cards—typically two to five—is suggested for manageability and optimal credit performance.
The “right” number of credit cards varies from one person to the next. It’s imperative to evaluate personal spending habits and associated fees to make an informed decision about closing a credit card. Maintaining accounts with positive payment histories for ten years can benefit your credit profile, a factor to weigh when considering the closure of any credit card account.
