Should I cancel my credit card if I don't use it?

Should You Cancel That Dusty Credit Card? A Practical Guide

Unused credit cards sit in wallets, gathering dust. The question of whether to cancel them is surprisingly nuanced, going beyond simply clearing clutter. The decision hinges on a careful assessment of several key factors impacting your financial health. Let’s break down the pros and cons to help you determine the right course of action.

The Case for Keeping Unused Cards:

• Credit Score Impact: A significant factor often overlooked is the length of your credit history. Each credit card account, even an unused one, contributes to your credit utilization ratio (the percentage of available credit you’re using) and the age of your credit history. A longer, diverse credit history typically translates to a higher credit score, crucial for securing loans, mortgages, and even better interest rates on future credit cards. Closing an account, especially an older one, can negatively impact these metrics, potentially lowering your score.

• Emergency Fund Access: Life throws curveballs. Having an available credit line, even on an unused card, provides a safety net in unforeseen circumstances. Unexpected car repairs, medical bills, or job loss can be easier to navigate with access to readily available credit. Cancelling a card removes this buffer.

• Potential Rewards: Some cards offer annual fees that might seem unnecessary if unused. However, even if you don’t actively use the card for purchases, you might still benefit from perks like travel insurance, purchase protection, or other benefits, making the annual fee worthwhile. Consider the value proposition before cancellation.

• Credit Limit Impact: Closing an account reduces your overall available credit. This can increase your credit utilization ratio, potentially hurting your credit score if you’re already using a significant portion of your available credit on other cards.

The Case for Cancelling Unused Cards:

• Annual Fees: If a card charges a significant annual fee with no offsetting benefits, canceling might be financially prudent. The cost of holding onto the card outweighs any potential advantages.

• Security Concerns: An unused card presents a potential security risk. If compromised, it could be used for fraudulent transactions, even if you don’t actively use it. Cancelling the card eliminates this vulnerability.

• Clutter and Administrative Burden: Let’s face it; managing multiple accounts can be tedious. If the card offers no real benefit and contributes to financial administration stress, cancelling it can simplify your financial life.

Making the Decision:

The best approach is a personalized one. Carefully weigh the advantages and disadvantages based on your individual financial situation. Consider these questions:

• What is the annual fee (if any)?
• How long have you had the card?
• What are the benefits associated with the card (rewards, insurance, etc.)?
• What is your current credit utilization ratio?
• Do you have sufficient emergency funds readily available?

If the potential negative impact on your credit score outweighs the benefits, keeping the card might be advisable. Conversely, if annual fees are substantial and the card offers no significant perks, canceling might be the better option. Before cancelling, contact your credit card issuer to explore any potential alternatives, such as requesting a fee waiver or lowering the annual fee. Ultimately, informed decision-making will safeguard your financial wellbeing.