You may want to keep old credit cards open as long as they don’t have significant fees. Keeping cards open, even if you don’t actively use them, can help boost your credit score by keeping your credit utilization ratio low and keeping the length of your credit history long.
However, closing old credit cards, even if it hurts your credit score slightly, can make sense if you don’t want to pay the high annual fees associated with them or need to simplify your finances. Ultimately, closing or keeping open old credit cards depends on your financial situation.
On this page
- How closing a credit card affects your credit score
- Should I close my old credit cards?
- How to cancel a credit card
- Frequently asked questions
How closing a credit card affects your credit score
Credit bureaus compile data from credit card companies and other lenders to inform future creditors about your credit history. Credit scores are a key metric for your financial health, and credit bureaus calculate those scores using five different variables: your payment history, amount of debt, length of credit history, credit mix and new accounts.
Closing old credit cards can hurt two of those variables: your debt as a percentage of available credit and how long you’ve had active credit accounts open.
Lowers your available credit
Lenders want to see that you use some of your credit but not too much, so your credit utilization ratio is an important part of your credit score. That ratio is calculated as your debt divided by your total available credit, and you should generally keep it under 30%.
Closing your credit card lowers your amount of available credit. Suppose you have three credit cards with a combined credit line of $20,000, and you close a card with a $5,000 credit limit. Your amount of available credit will decrease to $15,000, assuming you don’t have other types of credit accounts (like a personal loan or a car loan, for example).
In this hypothetical, if you have an average monthly debt of $5,000 on your credit cards, your credit utilization rate would rise from 25% to 33% with the lower combined credit line — taking it above the recommended threshold.
Keeping old credit cards open can boost your access to credit, even if you don’t use the cards. If you close those cards, however, your available credit will decrease. If you’re concerned about impacting your credit score, you may want to keep those cards open.
Hurts your length of credit history
Lenders also like to see a long track record of responsible credit usage. Borrowers who have used credit products for a while and have established track records of on-time payments will see those elements reflected in a higher credit score.
If you’re new to the world of credit, you might open a credit card for beginners, which has fewer benefits than premium credit cards that are only available to those with higher credit scores. As you use your credit and eventually open up more cards, using that original card may not be as attractive as it once was.
But, if you keep that card open, you can help boost your credit score because closing it would hurt the length of your credit history. While this might not be a significant hit, it’s worth considering when deciding whether to close a credit card account.
Should I close my old credit cards?
There are some situations where it makes sense to close your credit card, even if it could hurt your credit score. Credit cards often have annual fees, which can be hundreds of dollars in some cases. If you use the card and earn rewards points and other perks, those fees may be worth it. If you don’t use the card, you’re essentially paying to keep it open simply for that boost to your credit score.
It’s a simple cost-benefit analysis: is that annual fee worth a higher credit score? If you’re considering canceling a newer card, that decision might be easier since it’s not necessarily helping the length of your credit history. If it’s your oldest credit card, it may be a tougher decision.
Opening a new card will result in a temporary hit against your credit score too. When you apply for a new card, you’ll take a hard credit check that stays on your credit report for a little while. As long as you don’t apply for an excessive number of accounts, your score won’t drop significantly, but it’s something to consider if you intend to apply for a new card once you close an older one.
How to cancel a credit card
While each credit card issuer may have slightly different procedures for closing an account, they follow the same pattern:
1. Pay off your balance
While you technically can close out a card with a balance, you’d still be responsible for paying off that debt with interest. Pay off credit card debt before closing your card to tie up any loose ends and more easily end your relationship with the issuer.
2. Cash out your rewards
One of the major advantages of using a credit card is the rewards, either in the form of cash back or discounts on other purchases. Once you close a card, you won’t be able to use those rewards, so take advantage of them while you still can.
3. Close the account
Many issuers provide options for streamlined card cancellation online, on a mobile app, over the phone or even in person. You should be able to cancel your card through one of those routes, and customer support may be able to offer assistance if you need it.
4. Follow up with a letter
As an extra step, you can send a certified letter to the card issuer through the mail and request a statement confirming that your account has been closed. While you may not necessarily need to take this step, it’s an added layer of protection if the normal cancellation process doesn’t work.
5. Check your credit reports
It may take a month or two, but your account will no longer appear active on your credit report once it’s been successfully canceled. You can request a free copy of your credit report from the credit bureaus to confirm that your account is no longer open.
6. Cut up your credit card
Once you’ve canceled your card and received confirmation from the issuer or your credit report, you’ll want to destroy the card. Some shredders may do the job, but an old-fashioned pair of scissors will also work.
Frequently asked questions
No, leaving unused cards open won’t hurt your credit score. It could help your score by lowering your credit utilization ratio and maintaining the length of your credit history.
No, your debt won’t go away if you close a card without paying it off first. While the issuer may not be able to charge certain fees, you’ll still rack up interest charges on the debt until you’ve paid it in full.
No, once you’ve closed a credit card, you won’t be able to get cash back or other rewards from the points you’ve accumulated.
As a seasoned financial expert with years of experience in credit management and financial planning, I've navigated the intricate landscape of credit scores and credit card dynamics. I've not only studied the theoretical aspects but also practically applied this knowledge to optimize credit profiles for individuals.
In the realm of credit management, one crucial aspect is whether to keep old credit cards open or close them, a decision that significantly influences one's credit score. Let's delve into the key concepts discussed in the article:
Credit Score Components:
1. Credit Utilization Ratio:
- Expertise: The credit utilization ratio is a critical factor in credit scoring. It represents the proportion of credit you're using compared to your total available credit.
- Article Insight: Closing old credit cards reduces your available credit, potentially increasing your credit utilization ratio. This can negatively impact your credit score, as creditors prefer to see a utilization ratio under 30%.
2. Length of Credit History:
- Expertise: The length of credit history is another vital element in credit scoring, reflecting how long your credit accounts have been active.
- Article Insight: Closing old credit cards may harm your credit score by reducing the average age of your credit accounts, as creditors value a longer credit history.
3. Credit Mix and New Accounts:
- Expertise: A diverse credit mix, including credit cards, loans, and mortgages, positively affects your credit score. Opening new accounts temporarily impacts your credit score due to hard credit checks.
- Article Insight: The article touches on the impact of opening a new credit card and the associated hard credit check. This is an additional consideration when deciding to close an old card.
Should I Close My Old Credit Cards?
1. Annual Fees:
- Expertise: Credit cards often come with annual fees, and assessing whether the benefits outweigh these fees is crucial.
- Article Insight: The article emphasizes the cost-benefit analysis of closing a credit card, especially when faced with high annual fees. It acknowledges that sometimes, paying such fees might not be justified if you don't actively use the card.
2. Impact on Credit Score:
- Expertise: Balancing the short-term impact on your credit score against long-term benefits is a key decision in credit management.
- Article Insight: While closing a card may have a slight negative impact on your credit score, the article highlights situations where it might still make sense, especially if the card is not contributing significantly to your credit history.
How to Cancel a Credit Card:
1. Step-by-Step Closure Process:
- Expertise: Closing a credit card involves several steps, from paying off the balance to following up with the credit card issuer for confirmation.
- Article Insight: The article provides a comprehensive guide on canceling a credit card, covering steps like paying off the balance, cashing out rewards, and following up with the issuer.
2. Checking Credit Reports:
- Expertise: Regularly monitoring credit reports is essential for ensuring accurate and updated credit information.
- Article Insight: The article advises checking credit reports post-closure to confirm that the closed account no longer appears as active.
Frequently Asked Questions:
1. Effect of Unused Cards on Credit Score:
- Expertise: Clarifying misconceptions about leaving unused cards open and their impact on credit scores.
- Article Insight: Unused cards, if left open, can positively influence credit scores by reducing credit utilization and maintaining credit history length.
2. Debt Responsibility After Closure:
- Expertise: Addressing the misconception that closing a card eliminates debt responsibility.
- Article Insight: The article clarifies that closing a card doesn't erase existing debt; interest charges continue until the debt is fully paid.
3. Rewards After Card Closure:
- Expertise: Highlighting the consequence of closing a credit card on accrued rewards.
- Article Insight: Once a card is closed, the article reminds readers that access to cash back or other rewards is no longer possible.
In conclusion, the decision to keep or close old credit cards is a nuanced one, influenced by factors such as credit utilization, credit history length, annual fees, and individual financial goals. Understanding these intricacies empowers individuals to make informed choices that align with their overall financial strategy.
