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? Show
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 cardsKeeping 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:
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 scoreCanceling a credit card can impact your credit score, but not straight away. A closed account will stay on your credit report for up to 10 years. When the closed account falls off your report, 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 percent, but those with excellent credit keep it around 10 percent or less. Additionally, closing this credit account may reduce your mix of credit, which is another factor that contributes to 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 cardsKeeping 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. Make sure to enable automated payments to cover the balance each month. When you should cancel an unused credit cardIf 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 enough time to weigh your options. If your bank has already deactivated the account, contact them to see if you can negotiate. If your account was otherwise in good standing, your issuer is likely open to the idea of keeping a customer’s account active. One of the most common reasons for canceling a credit card is if the card has an annual fee that’s no longer worth it. If the yearly fee isn’t worth the positive impact of keeping an open credit account, you might want to cancel it. In this case, however, you can also request a product change to a lower tier card that may offer similar benefits without the fee—that way you can keep your account and ditch the extra expense. 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 cardUltimately, 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.
Most people won’t keep every card they’ve ever opened. So, here are a few recommendations for those times when you need to dump a card:
The bottom lineClosing a credit card is a personal decision that should only be made after considering the effects that this may have on your credit score. Do the benefits outweigh the drawbacks of hurting your score? Once you have this clarified, your decisions will be based on your needs and financial health. Do unused credit cards close automatically?Generally, most credit card issuers do not automatically close a card, if it has not been used for extended periods. Even if you have not used your card for a long time, say 2 - 3 years, the card issuer will first send you a notification regarding inactivity, asking you to make use of your card.
Is it better to close a credit card or let it go inactive?In general, it's best to keep unused credit cards open so that you benefit from a longer average credit history and a larger amount of available credit. Credit scoring models reward you for having long-standing credit accounts, and for using only a small portion of your credit limit.
Does credit card closed due to inactivity affect credit score?Summary. Not using your credit card doesn't hurt your score. However, your issuer may eventually close the account due to inactivity, which could affect your score by lowering your overall available credit.
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