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In this article:
- How canceling your unused credit card affects your credit score
- When it makes sense to keep an unused credit card
- the end result
In general, it's best to keep unused credit cards on hold so that you can benefit from a longer average credit history and a higher available balance. Credit score models reward you for having old credit accounts and only using a small portion of your credit limit.
However, there are cases where closing a credit card account might make sense. If your unused card has an expensive annual fee, you're worried about controlling your spending, or the account you're trying to close is relatively new, it might be safer to cancel.
Here's what you need to know before getting rid of your credit cards.
How canceling unused credit card affects your credit score
It may seem counterintuitive to keep a credit card account open when you're not using it. This is especially true if you think closing an account will prevent overspending - which is a nice boost. butcredit card lockcan negatively affect your credit score. See how:
- Increased use of credit: Yourcredit utilization rateis the amount of revolving debt you currently have compared to your total credit limit. The lower the rate, the better. This shows creditors that you're not maxing out your cards and you can be sure you're using credit responsibly when they extend it to you.
Closing a credit account affects the amount of credit available. For example, if you have a credit card with a $2,000 line of credit and another with a $3,000 line of credit, your total available credit will be $5,000. If you currently owe $1,000 between the two cards, your credit utilization rate is 20%.
Suppose your $1,000 balance is on the card with the highest credit limit, and you decide to close the other card. If you close the card with a $2,000 line of credit, your total available balance will be reduced to $3,000. With $1,000 in credit card debt, your utilization rate increases to around 33%. The use of credit represents 30% of itsFICO®punctuation☉ , the most common score used by lenders, so this change can have a significant impact on your score.
Experts recommend keeping your credit utilization below 30% at all times, and the closer to zero the better. Evaluate how closing an account would affect your credit utilization before doing so.
- Reduction in the average age of accounts: A less important factor in determining your credit score is your credit history, or how long you've been actively using credit. This represents 15% of your FICO®Punctuation. Closing a credit card account — especially an older one — lowers the average age of your accounts.
In our example above, let's say you have the $2,000 limit card for eight years and the $3,000 limit card for two years. Closing the card with the $2,000 limit means your only open credit card account would be two years old. Other bills, such as student loans and car loans, would still be included in the median age. But it's generally best to keep your older account open so you don't drastically and accidentally shorten the length of your credit history.
When it makes sense to keep an unused credit card
Especially if you plan to apply for new credit soon, such as a mortgage or car loan, keeping unused credit cards handy can help protect a good credit score.
check yourcredit reportto identify your oldest credit card account and, in most cases, plan to keep it open. It's also a good idea if the card you're trying to close has a high credit limit, and canceling it would greatly reduce your available balance.
If you're afraid of the temptation to spend money, put the card in a hard-to-reach place, like a doorway. B. in a closet and only keep one card for emergencies. You may want to use cash for most purchases, but charge your credit card with a one-time recurring charge, such as a 10-day charge. B. Your Netflix payment and pay it automatically each month. This helps keep your credit utilization low, your payment history spotless, and your credit score in good shape.
If you really can't control your spending and closing the account seems like the only way to properly manage your finances, it may be worth the short-term credit hit. An unused card with a high annual fee that you can't afford is also generally safe to close, as is a newly opened account that you don't use. Canceling has less of a negative impact on your credit score than closing an old account.
the end result
Keeping credit card accounts open for as long as possible is a smart strategy for building and maintaining good credit, especially if you plan on taking out loans in the near future. Assess the age of the account and your credit limit before closing it, but also take stock of your spending habits and any fees associated with the card.
Every financial decision is personal; While it's generally best to keep unused accounts open, you may find that closing an account is the best option for you.
FAQs
Is it better to close a credit card or leave it unused? ›
Credit experts advise against closing credit cards, even when you're not using them, for good reason. “Canceling a credit card has the potential to reduce your score, not increase it,” says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report.
Should I cancel a credit card Ive never used? ›With no annual fee cards and most other scenarios, you'll be better off keeping your account open and active. Maintaining the account can be hands-free and will help your financial health.
Does Cancelling unused credit cards help your credit score? ›A common reason to keep an unused credit card open is to boost your credit score. Open card accounts can help your credit score in two different ways: credit utilization and length of credit history. Closing a credit card account can negatively affect both of those components of your credit score.
Is it better to close a credit card or leave it open with a zero balance reddit? ›LPT: Closing a credit card actually hurts your credit score because it effects your credit utilization ratio, making getting new debt in the future more challenging. Leaving $0 annual fee cards open with a zero balance is better than closing them. *This is only true if you do not have lots of open credit cards.
Is it bad to let a credit card go unused? ›In general, it's best to keep unused credit cards open so that you benefit from a longer average credit history and a larger amount of available credit. Credit scoring models reward you for having long-standing credit accounts, and for using only a small portion of your credit limit.
How many credit cards are too many? ›It's generally recommended that you have two to three credit card accounts at a time, in addition to other types of credit. Remember that your total available credit and your debt to credit ratio can impact your credit scores. If you have more than three credit cards, it may be hard to keep track of monthly payments.
Does canceling your oldest credit card hurt your credit? ›The longer you've had credit, the better it is for your credit score. Your score is based on the average age of all your accounts, so closing the one that's been open the longest could lower your score the most. Closing a new account will have less of an impact.
What happens if you have a credit card but never use it? ›If you stop using your credit card for new purchases, your card issuer can close or curb your credit line and impact your credit score. Your credit card may be closed or restricted for inactivity, both of which can hurt your credit score.
Can too many credit cards hurt your credit? ›Having too many outstanding credit lines, even if not used, can hurt credit scores by making you look more potentially risky to lenders. You can boost your score in some cases by opening new credit cards if the new credit lines lower your overall utilization ratio.
Is 3 credit cards too many? ›There isn't a set number of credit cards you should have, but having less than five credit accounts total can make it more difficult for scoring models to issue you a score and make you less attractive to lenders.
How do I close my credit card without hurting my credit? ›
- Check your outstanding rewards balance. Some cards cancel any cash-back or other rewards you've earned when you close your account. ...
- Contact your credit card issuers. ...
- Send a follow-up letter. ...
- Check your credit report. ...
- Destroy your card.
It might make sense to cancel a credit card if there are high fees, such as late payment fees, annual fees, cash advance fees or fees when you go over your credit limit. Frequent overspending.
Should I pay off my credit card in full or leave a small balance for credit score? ›If you regularly use your credit card to make purchases but repay it in full, your credit score will most likely be better than if you carry the balance month to month. Your credit utilization ratio is another important factor that affects your credit score.
Why you should never close a credit card? ›Since your credit utilization ratio is the ratio of your current balances to your available credit, reducing the amount of credit available to you by closing a credit card could cause your credit utilization ratio to go up and your credit score to go down.
What is a 5 24 rule? ›What is the 5/24 rule? Many card issuers have criteria for who can qualify for new accounts, but Chase is perhaps the most strict. Chase's 5/24 rule means that you can't be approved for most Chase cards if you've opened five or more personal credit cards (from any card issuer) within the past 24 months.
What is considered high credit card debt? ›If your total balance is more than 30% of the total credit limit, you may be in too much debt. Some experts consider it best to keep credit utilization between 1% and 10%, while anything between 11% and 30% is typically considered good.
Is it smart to not use credit cards? ›The bottom line is that not using your card can still be good for your credit. And it's far better than using your card irresponsibly. So if you don't trust yourself to limit your spending, it may be wise to set your card aside until you have a necessary expense.
Is 10 credit cards too many? ›There is no universal number of credit cards that is “too many.” Your credit score won't tank once you hit a certain number. In reality, the point of “too many” credit cards is when you're losing money on annual fees or having trouble keeping up with bills — and that varies from person to person.
What is the average credit score for Americans? ›Credit scores help lenders decide whether to grant you credit. The average credit score in the United States is 698, based on VantageScore® data from February 2021.
How many credit cards does the average American have? ›Americans carry 4 credit cards on average. Here's how many you should have, according the experts. Managing multiple cards isn't for everyone. Credit cards often get a bad rap for having high interest rates and leading to unmanageable debt.
What is the 15/3 rule for credit card? ›
The 15/3 hack claims you can dramatically help your credit score by making half your credit card payment 15 days before your account statement due date and the other half-payment three days before.
What is a good total credit limit? ›A good credit limit is above $30,000, as that is the average credit card limit, according to Experian. To get a credit limit this high, you typically need an excellent credit score, a high income and little to no existing debt.
Does the 15/3 credit rule work? ›Does the 15/3 payment method work? In most cases, you won't see a ton of impact to your credit score by using the 15/3 payment method. Your credit utilization ratio is only one factor that makes up your credit score, and making multiple payments each month is unlikely to make a big difference.
Do credit card companies like when you pay in full? ›Yes, credit card companies do like it when you pay in full each month. In fact, they consider it a sign of creditworthiness and active use of your credit card. Carrying a balance month-to-month increases your debt through interest charges and can hurt your credit score if your balance is over 30% of your credit limit.
Is it true that if you pay off your entire credit card balance in full every month you will hurt your score you must carry some balance from month to month? ›Paying your credit card balance in full each month can help your credit scores. There is a common myth that carrying a balance on your credit card from month to month is good for your credit scores. That simply is not true.
Does no debt mean higher credit score? ›Having no credit card debt isn't bad for your credit scores, but you do need to maintain open and active credit accounts to have the best scores. By using your credit cards and paying the balances off monthly (so that you carry no debt), you could achieve an excellent credit score.
Is having 10 credit cards too much? ›There is no universal number of credit cards that is “too many.” Your credit score won't tank once you hit a certain number. In reality, the point of “too many” credit cards is when you're losing money on annual fees or having trouble keeping up with bills — and that varies from person to person.
Is 10 credit cards too many to have? ›While I'm nowhere near extreme credit card optimizers who have over 30 credit cards, 10 cards is still well above the national average of four. There's no perfect answer to how many credit cards should you have, as long as you're responsible about paying off your balance on time and in full each month.
How many credit cards does an average person has? ›How many credit cards does the average person have? According to the latest figures from Experian, the average American has 3.84 credit cards with an average credit limit of $30,365. And their credit journey usually begins early, with the average Gen Z consumer having 2.1 credit cards.
How many credit cards should the average person have? ›There isn't a magic number of credit cards you should have, although having at least one card may be a good idea if you want to build credit. Generally, how you use the cards is more important than how many credit card accounts you have open.