Is it bad to cancel a credit card you no longer use?

Navigating Credit Card Cancellations: Preserving Credit Health

It’s tempting to discard unused credit cards, but doing so may have unintended consequences for your credit score. Maintaining dormant accounts can actually benefit your credit health in the long run. Here’s why:

Impact on Credit History Length

Credit history length refers to the number of years you’ve had active credit accounts. It’s a significant factor in calculating your credit score. By keeping older accounts open, even if you’re not using them, you’re extending your credit history. This positive history helps you qualify for better terms on future loans or credit applications.

Available Credit Utilization

Your credit utilization ratio measures the amount of credit you’re using compared to your total available credit. Closing unused accounts reduces your total available credit, potentially increasing your utilization ratio. A high utilization ratio can hurt your credit score.

Unexpected Creditworthiness Impact

Closing a credit card can unexpectedly harm your creditworthiness. The credit bureaus consider the number of closed accounts in a short period. Too many closed accounts can raise red flags, leading to a lower credit score.

Advantages of Keeping Unused Credit Cards

• Potential Fraud Protection: Dormant cards can still be used for fraudulent activity. Keeping them open allows you to monitor activity and report any suspicious transactions.
• Increased Credit Limit: Unused credit cards can help increase your total credit limit, improving your credit utilization ratio.
• Convenience in Emergencies: You never know when you might need additional funds. Having an unused credit card provides a convenient backup in case of emergencies.

Alternative to Credit Card Cancellation

If you’re concerned about the potential downsides of closing unused credit cards, consider these alternatives:

• Freeze Your Card: Contact the issuer and request a credit freeze. This will prevent any new activity on the card while keeping it open and preserving your credit history.
• Set Up Automatic Payments: Ensure that the minimum payment is automatically paid each month to avoid account closure due to inactivity.
• Use the Card Occasionally: Make small purchases or set up a recurring subscription to keep the account active.

Conclusion

Canceling unused credit cards may seem like an easy way to simplify your finances, but it can have negative consequences for your credit score. By understanding the impact of maintaining dormant accounts, you can make informed decisions that protect and enhance your credit health. Consider alternative options, such as freezing the card or setting up automatic payments, to keep your unused credit cards active without the hassle of regular use.