Should I Close an Unused Credit Card?

Whether you close a credit card you’re not using or keep it open is really up to you. However, before you call your credit company and shut it down, you’ll want to make sure you understand the ramifications of closing your card.

While closing your card may seem like a no-brainer, the reality is more complex. Of course, if you pay your payments on time and want to close the card because the interest rate is too high or you no longer shop at the store your card is for, then closing it may be the right move. But make sure your balance is paid off first. You might also want to open another card before closing it, just to counteract any negative impact you might get hit with by closing it.

What are the negatives of closing a card?

Credit Utilization

The No. 1 reason not to close a credit card is dependent on how much available credit you have, how much you owe, and how closing your card will impact that ratio—called the credit utilization ratio. What this means is that if you close a credit card and you owe more than 30% of your available credit, this can negatively impact your credit score since your credit utilization makes up 30% of your FICO score. This is especially risky for your credit score if you’re hovering on the edge of good credit. 

If you’re closing a credit card just because you don’t use it anymore, one way to combat this issue is to open another credit card before you close your current one. Just make sure to spend wisely and pay off your balance each month so you don’t fall into debt.

Credit Card History

Another issue you might run into is if the card you want to close is an older one. When you close a card that you have a long history with, you run the risk of shortening your credit history. This can negatively impact your score. If you don’t use it anymore, simply cut it up and leave it open. This way you don’t have to worry about carrying it around, spending more than you want to, or limiting your credit history.

Credit Mix

While it doesn’t weigh in too heavily at 10%, if you only have one or two credit cards and you decide to close one, you might be messing with your credit mix. What this means is that having a variety of different types of credit lines open weighs in favorably on your FICO score. This may not be a deciding factor in whether you close your card, but it should be considered before you call your lender and shut it down.

When should you close a credit card?

You should close your card if you’re finding that you can’t rein in your spending. If this is the case, it might be time to talk to a credit counselor. A credit counselor can help you create a budget focusing on paying your cards off and getting a better handle on your finances. They can also help you enroll in a debt management plan and work with your lenders to lower your interest rate and consolidate your loans into one affordable monthly payment. 

If you’re a responsible spender and your credit is in good standing, closing your credit card can be as simple as calling your lender and shutting it down. But if any of the above reasons can potentially hit you, weigh your options and reasons for closing your card—so that you don’t end up taking a credit score hit you could have easily avoided.