Should I Close Old Credit Card I Dont Use Anymore?

Having old credit cards you no longer use can seem like unnecessary clutter. You may be tempted to close those accounts to simplify your finances. However, closing credit cards can hurt your credit score. Here’s what you need to know about whether to close old credit cards you don’t use anymore.

How Closing Credit Cards Impacts Your Credit Score

Closing credit cards can damage your credit score in a few key ways:

It Reduces Your Total Available Credit

Part of your credit score is based on your credit utilization ratio. This is the amount you owe divided by your total credit limit. If you close some accounts, it lowers your total credit limit. Even if your balances stay the same, your credit utilization ratio goes up. This can cause your credit score to drop.

For the best credit scores, experts recommend keeping your utilization below 30%. The lower the better. Closing accounts makes it harder to keep your ratio low.

It Raises Your Utilization Ratio on Individual Cards

Your credit utilization ratio is also calculated for each card. So if you close some accounts, you are putting more spending on fewer cards. This raises the utilization of your open accounts, also lowering your scores.

It Shortens Your Length of Credit History

The average age of your credit accounts is factored into your credit score. When you close a long-held card, it brings down your average account age. This can reduce your credit scores.

It Reduces Your Total Number of Accounts

Credit scoring models like to see that you can responsibly manage multiple accounts. Having fewer total accounts after closing some cards can slightly ding your scores.

When It Might Make Sense to Close a Credit Card

While closing unused cards generally isn’t recommended, there are some situations where it could be the right move:

The Card Has an Annual Fee

If a card charges a high annual fee and you aren’t using it, it may make sense to close the account. This avoids paying unnecessary fees year after year. You can request a product change to a free card from the same issuer first to avoid closure.

The Card Company Might Close It Anyway

Issuers sometimes close inactive accounts. So if you have a store card you never use, it could get closed by the issuer. You may want to proactively close it yourself in that case.

You Have Too Many Cards to Manage

If you have more cards than you can reasonably keep track of, consolidation could help simplify things. But be selective about which cards you close to avoid damaging your credit.

You No Longer Do Business with the Company

Closing a card associated with a company you no longer patronize, like an old gym membership, is fine. Just be sure to open a new card elsewhere to replace it.

Alternatives to Closing Old Credit Cards

Instead of closing old accounts, consider these options to simplify your finances:

Use the Card minimally

To keep the account active, make a small purchase every 6-12 months and pay it off. Set a calendar reminder if needed. This maintains your credit history.

Set up Autopay

Have a small recurring bill like Netflix auto-paid to the card. This keeps it open without maintenance. Just be sure to monitor charges so nothing slips by.

Contact the issuer

Ask the card company if they can product change your card to a $0 annual fee version you can keep open without use. This preserves the credit history.

Upgrade with the same issuer

Apply for a new card with more appealing rewards or features from the same provider. Then you can shift spending to the new card. This allows closing the old one without losing credit history.

Key Factors in Deciding Whether to Close an Unused Card

If you are on the fence about closing an old credit card, weigh these key considerations:

How old is the card? The older the account, the more closing it will hurt your credit scores. Try to keep cards open at least 7-10 years.

What is the impact on utilization? Will closing the card significantly reduce your total limits or increase utilization ratios? If so, it’s best to keep it open.

How many other cards do you have? Having ample other accounts can offset the effects of closing one. But if you only have a few cards, each one is more valuable.

Are there other cards from the same issuer? Keeping a relationship with an issuer by having other open accounts avoids losing credit history with them when closing a card.

Does the card have an annual fee? Cards with ongoing annual fees are more logical candidates for closure if you don’t use them.

Alternatives to Closing Accounts if the Card is Lost or Stolen

If your credit card is lost or stolen, you may think you have to close the account. But these options allow you to keep the card open to preserve your credit:

Report the card lost/stolen to the issuer right away
Get a replacement card with a new card number. This invalidates the old card for purchases.
Request a new account number without closing the account. This essentially gives you a new credit card connected to the same history.
Put a freeze on the account if you find it soon after. This blocks activity until you recover the card.
Monitor the account closely for unauthorized activity and dispute any suspicious charges.

The Impact of Closing Credit Cards on Other Credit Factors

Beyond utilization and history, closing accounts can impact other credit factors:

Credit inquiries – Applying for new cards to replace closed ones can generate hard inquiries. Too many hard inquiries can ding scores temporarily.

Variety of credit – Eliminating a type of credit, like a department store card, reduces your credit mix. Diverse credit is optimal for scores.

Availability of credit – Losing open accounts you’ve paid on time can reduce your available credit, hurting scores.

New accounts – As replacement cards age, they build history. But brand new accounts bring down your average account age at first.

You have to carefully weigh the impacts before closing any accounts. But in most cases, you are better off keeping old cards open.

Tips for Managing Old Credit Cards You Don’t Use

If you want to keep unused cards open to preserve credit, here are some tips for managing them:

Note the card expiration dates and update when sending replacements.
Check your statements monthly to ensure no fraudulent charges appear.
Set up alerts for any transaction activity on unused cards so you are notified.
Consider consolidating multiple old cards into one sock drawer card you check periodically.
Contact issuers of unused cards periodically to confirm they will remain open.
When a closure seems necessary, discuss alternatives like product changes with the issuer first.
Before closing your oldest card, open a new card so your credit history isn’t drastically shortened.

Conclusion

Closing old credit cards can sometimes do more harm than good in many cases due to the impacts on your credit. Unless an unused card is costing you money in annual fees, causing account management headaches, or presenting fraud risk, keeping it open preserves your credit.

You can use occasional small charges to keep dormant cards active or consolidate them into one you monitor. Limit closure to cards that no longer make sense for your spending habits or relationship status with the issuer. By selectively keeping old accounts open, you maintain a longer, more positive credit history as well as lower utilization for better credit scores.