Should I close a credit card that I don't use?

Should You Close an Unused Credit Card? The Impact on Your Credit Score

Credit cards play a crucial role in determining your credit score, which is a key factor in securing loans, credit cards, and insurance policies. While it may seem intuitive to close an unused credit card, this decision can have unexpected consequences on your creditworthiness.

Potential Downsides of Closing an Unused Credit Card

Closing an unused credit card can negatively impact your credit score in two ways:

1. Decreased Available Credit: Closing a credit card account reduces your total available credit. This can lead to a higher credit utilization ratio, which is the amount of credit you’re using compared to your total available credit. A high utilization rate can lower your credit score.

2. Shortened Credit History: When you close a credit card, the length of your credit history decreases. This is because closed accounts are typically removed from your credit report after a few years. A shorter credit history can lower your credit score because it reduces the amount of time lenders have to assess your creditworthiness.

When to Close an Unused Credit Card

There are certain situations where closing an unused credit card may be beneficial:

• Annual Fees: If your unused credit card has an annual fee that you’re not willing to pay, closing the account can eliminate this expense.
• Fraud or Identity Theft: If you suspect fraud or identity theft on your unused credit card, closing the account can protect your financial information.
• To Consolidate Debt: If you have multiple credit cards with high balances, closing an unused card can help you consolidate your debt onto one card with a lower interest rate.

When to Keep an Unused Credit Card Open

However, in most cases, it’s generally advisable to keep an unused credit card open for the following reasons:

• Maintain Credit History: Keeping an unused credit card open preserves your length of credit history and helps to protect your credit score.
• Lowers Credit Utilization Ratio: An unused credit card with a high credit limit can help to lower your overall credit utilization ratio, which can improve your credit score.
• Financial Emergencies: An unused credit card can provide access to emergency funds if needed. Having an extra line of credit can give you peace of mind in the event of unforeseen expenses.

Conclusion

Closing an unused credit card can have unexpected consequences on your credit score. While it may be tempting to eliminate unused cards, it’s important to weigh the potential benefits and risks carefully. In most cases, it’s advisable to keep unused credit cards open to maintain your credit history, lower your credit utilization ratio, and have access to additional funds in case of emergencies.