Key takeaways
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It’s typically better for your credit score to keep an unused credit card open, especially if it’s your oldest line of credit.
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However, you might be better off canceling the credit card instead if you’re paying a high annual fee on the card, having a hard time juggling all of your cards or are struggling to use your card responsibly.
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Before canceling a card, be sure to look at your finances holistically and review your credit history so you can make an informed choice.
Deciding whether to keep or cancel an unused credit card involves more than tidying up your wallet. Important factors are at play — like how it might affect your credit score and overall financial well-being.
There are compelling reasons to keep those unused cards, but sometimes canceling is the better option. Here’s what you should know before making that decision, as well as what we recommend, depending on your situation:
How canceling your unused credit cards affects your credit score
While canceling a card may seem like a good way to simplify your finances or reduce the temptation to overspend, it can have unintended consequences for your credit score.
It increases credit utilization
Canceling a credit card decreases your total amount of available credit. This leads to an increase in the total percentage of available credit you’re using, also known as your credit utilization ratio.
Because it’s a significant part of all credit scoring models, having higher credit utilization can negatively affect your credit score.
Calculating credit utilization
Let’s say you have two credit cards with a total limit of $10,000 and a balance of $2,000. Your credit utilization ratio would be 20 percent. If you close one card with a $5,000 limit, your available credit drops to $5,000. As a result, your utilization ratio jumps to 40 percent, even though you haven’t taken on any additional debt.
It changes your average age of accounts
The length of your credit history makes up 15 percent of your credit score. Maintaining a longer credit history demonstrates to lenders that you have more experience managing credit and are, therefore, less of a risk.
Closing older accounts can lead to a score drop, especially if you decide to close the card you’ve had the longest. Even though closed accounts remain on your credit report for up to 10 years, they no longer contribute to the ongoing aging of your credit history.
When it makes sense to keep an unused credit card
In many cases, it’s a good idea to keep your current credit cards, even if you’re not using them. Here are the most common scenarios:
You’re planning to apply for a mortgage or other loan
Since canceling a credit card can lower your credit score, doing so may impact the rate and terms a lender is willing to offer. If your credit score was already borderline, even a small drop could cause the lender to deny your mortgage application or other loan application, such as a car loan or personal loan.
You’re new to building credit
If you’re new to building credit, keeping all accounts open can benefit your credit profile. An open, unused card helps establish a strong credit foundation by demonstrating your ability to manage available credit responsibly. It also provides a buffer for your credit utilization rate, making it easier to keep this ratio low.
For newcomers, showing consistent, responsible credit management can build a solid credit history more quickly.
Your card has no annual fee
If your unused credit card has no annual fee, there’s not much financial downside to leaving it open. This allows you to retain the account history and maintain lower utilization rates without incurring extra costs. The card can also serve as a financial safety net for unexpected expenses.
Money tip: If you’re not planning on using the card and don’t want it cluttering your wallet, you can always “freeze” the card, usually via your issuer’s mobile app, and store it somewhere safe at home. This way, you won’t have to worry as much about losing the card or someone using it fraudulently. Just be sure to check up on the account every once in a while to make sure it won’t get closed due to inactivity.
You may need access to credit in the future
Your credit needs may change over time. Keeping an unused card open allows you to access credit quickly without applying to get a new card. It also helps you avoid a hard inquiry, which can temporarily lower your credit score.
When to cancel an unused credit card
Despite the potential benefits of keeping an unused credit card, sometimes it makes sense to close your account. You might be better off closing it if:
You have difficulty managing multiple accounts
If you find managing multiple credit card accounts challenging, canceling an unused card can reduce stress and help you avoid missed payments.
Your card has a high annual fees
If your card has high annual fees, membership fees or other costs you can no longer justify, you may benefit from canceling it. Paying a fee for a card you don’t use creates an unnecessary expense.
Money tip: If your card has a high annual fee and you no longer get enough value out of it, you can always consider downgrading your card instead. Downgrading your card to a similar no-annual-fee product can allow you to keep your account open but avoid the old annual fee.
Learn more: Should you downgrade your credit card?
You tend to struggle with spending responsibly
If you have a hard time using credit cards responsibly, canceling unused cards can help you avoid potentially falling into unmanageable debt.
When looking to simplify your finances, remember that closing recently opened cards and those with low credit limits will likely have the smallest impact on your credit score.
Things to do before deciding to cancel an unused credit card
If you’re still leaning toward closing your unused credit card, take a few more steps to ensure you’re making an informed decision.
Review your credit history
Start by requesting a free copy of your credit report, which you can do online at Annualcreditreport.com, over the phone or by mailing in a request form. Once you receive it, look at how long you’ve had each card. If the card you’re considering closing is one you’ve held for years, you may want to reconsider.
Look at your available credit
Evaluate your total available credit and how canceling the card will affect it. To maintain good credit, keep your credit utilization ratio below 30 percent. Make sure closing the card won’t push you into the danger zone.
Consider the big picture
Think about your overall financial situation and goals. If canceling the card simplifies your finances or helps you avoid fees and overspending, it might be worth the potential short-term impact on your credit score.
How to cancel an unused credit card
Canceling an unused credit card isn’t as simple as cutting it up. To ensure the process goes smoothly and doesn’t create potential issues down the line, it’s important to follow a few key steps.
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Pay off the balance. Start by paying off any remaining balance on the card. While it is possible to cancel a credit card with an outstanding balance, it’s not recommended. You’ll still be responsible for making minimum payments and interest will still accrue. If you can’t pay the card in full, consider freezing the account until you can close it.
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Remove recurring charges. Review your credit card statements for any automatic charges or recurring payments tied to the card. Transfer them to another card or payment method to avoid missed payments and service interruptions after the card has been canceled.
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Contact the issuer. Call the card issuer’s customer service number, confirm your balance is zero and request to close the account. Write down the name of the person you’re speaking with and the date and time of the call.
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Confirm cancellation. After requesting cancellation, ask for written confirmation that the account has been closed. This documentation may prove important if any issues arise in the future, such as additional charges or a dispute about the account’s status.
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Destroy the card. Once you’ve confirmed the cancellation, destroy the physical card. Cutting it up or using a shredder prevents anyone from finding and fraudulently using the card.
Preventing involuntary card closure
Credit card companies sometimes close accounts due to inactivity. This can have the same impact as if you had closed the account. If you decide it’s in your best interest to keep an unused card, consider occasionally making charges and paying them off immediately.
Alternatively, you can use the card to pay a small monthly bill, such as your internet or phone bill, and set up automatic monthly payments. Continue monitoring your account to avoid any surprises.
The bottom line
Deciding whether to cancel an unused credit card is a personal decision that depends on your financial situation and goals. Keeping the card open can help maintain a healthy credit score by contributing to your credit history and utilization ratio. However, there are valid reasons to consider canceling, such as high annual fees or difficulties managing multiple accounts.
Now that you understand the pros and cons of canceling an unused credit card, you’re better equipped to evaluate how your current cards fit into your financial situation. Review your credit report, consider your financial goals and take the necessary steps to manage your credit responsibly. These steps will help you maintain a strong credit profile.
Frequently asked questions about unused credit cards
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Do unused credit cards hurt your score?
No, unused credit cards do not hurt your credit score. However, if the card has an outstanding balance, it’s critical to keep making payments on time, as late or missed payments can negatively impact your score.
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How many credit cards should I have?
The “right” number of credit cards varies from one person to the next. It’s important to have enough credit to meet your financial needs and maintain a low credit utilization ratio, but not so many that you struggle to manage them responsibly. We recommend having at least two credit cards just in case one gets lost or stolen.
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Why is a good credit score important?
Having good credit helps ensure you can secure loans, mortgages and credit cards with lower rates and favorable terms. It can also impact your insurance premiums and even your ability to rent an apartment or get a job. A strong credit score opens up more financial opportunities and can save you money.
