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So, you’ve got a credit card tucked away in your wallet that you haven’t used in ages. You’re probably wondering if it’s time to finally say goodbye to it. But hold on, my friend before you hit that “cancel” button, let’s talk about why closing a credit card, even an unused one might not be the best idea.
The Credit Score Conundrum
Your credit score is like your financial reputation. It’s a number that lenders use to assess your creditworthiness, and it plays a big role in determining the interest rates you qualify for on loans, mortgages, and even insurance.
Now, here’s the catch: closing a credit card can actually hurt your credit score. Here’s how:
- Credit utilization: This refers to the amount of credit you’re using compared to your total available credit. When you close a card, you’re essentially reducing your available credit, which can increase your credit utilization ratio. A higher utilization ratio can signal to lenders that you’re a credit risk, potentially lowering your score.
- Credit history length: The longer your credit history, the better. Closing a card, especially an older one, can shorten your average credit history, which can also negatively impact your score.
- Credit mix: Having a mix of different types of credit, such as credit cards and installment loans, can be beneficial for your credit score. Closing a card reduces the diversity of your credit portfolio, which can hurt your score.
But What If I Don’t Use the Card?
You may be wondering, “Why bother keeping it open?” if you’re not using the card. Here are a few reasons:
- It can help your credit score in the long run. Even if you’re not using the card, it’s still contributing to your credit history and utilization ratio. As long as you keep your balance low and pay your bills on time, your credit score will benefit.
- It can be a safety net. If you ever find yourself in a financial bind, having an unused credit card can be a lifesaver. You can use it to cover unexpected expenses or emergencies without having to resort to high-interest payday loans.
- It can offer valuable perks. Many credit cards come with rewards programs, travel insurance, purchase protection, and other benefits that can save you money. Even if you’re not using the card for everyday purchases, you can still take advantage of these perks.
Alternatives to Closing Your Card
Closing your credit card is one option if you’re determined to get rid of your unwanted credit card. Other options include:
- Downgrade to a no-annual-fee card. Some credit card issuers offer the option to downgrade your card to a version with no annual fee. This way, you can keep the card open without having to pay a yearly charge.
- Ask for a fee waiver. If you’re unable to downgrade your card, you can try calling your credit card issuer and asking for a fee waiver. Many issuers are willing to waive the annual fee for customers who have a good payment history.
- Transfer the balance to another card. If you have another credit card with a lower interest rate, you can transfer the balance from your unused card to save money on interest charges.
The Bottom Line
Your credit score may suffer if you close a credit card, even if it is an unused one. Examine your options and weigh the possible repercussions before choosing to close a card. Recall that getting a good credit score is necessary to get good loan terms and create a solid financial future. So, think twice before you say goodbye to that unused credit card. It might just be your secret weapon for financial success.
Destroy the credit card
Destroying the credit card will help protect you from identity theft and credit card fraud. It will also help prevent you from accidentally trying to use the canceled credit card to make purchases.
Check your credit reports
Upon obtaining verification of the account cancellation, examine your credit reports from the three primary credit reporting agencies (Equifax, Experian, and TransUnion). Verify that your credit card is no longer active and check your report for the notation “closed at customer request.”
Why You Should Never Close A Credit Card?
FAQ
Is it better to cancel unused credit cards or keep them?
Is it harmful to close a credit card?
Is it bad to close a credit card with zero balance?
How do I get rid of a credit card without hurting my credit?