Should You Cancel Unused Credit Cards or Keep Them?

Before we get any further, let’s assume that the unused credit card that you’d like to cancel meets the following criteria:

• There is a zero balance on the card.
• You are not using the card for any transactions and have no plans to in the future.
• You are not gaining value from the cardholder benefits.

A common reason to keep an unused credit card open is to boost your credit score. If you’re not using your card, simply having an open card account 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.

Credit utilization ratio is another way of saying “What percent of my available credit am I using?” It’s a major factor in most credit scoring models, and having a lower ratio is seen as desirable. Generally speaking, the higher someone’s credit utilization ratio, the greater the risk they’ll default on an account within two years.¹

Let’s look at an example in which your entire credit report has just two credit card accounts: one you use and one you don’t. Each card has a credit limit of $10,000, for a total of $20,000. If you charge $1,000 per month on the credit card you use and immediately pay off your bill in full, over the course of the month your credit utilization wouldn’t go above 5% ($1,000/$20,000). If you cancel the unused card and don’t change any other behaviors, however, your credit utilization would go as high as 10% ($1,000/$10,000) since your total available credit would be halved.

Length of your credit history may also be adversely affected by canceling a credit card because doing so can reduce your average account age and the overall length of your credit history. Credit scoring models consider longer credit histories more favorable than shorter ones. Closing your oldest account can shorten the length of your credit history and may cause your credit score to dip.

The exact impact of closing an unused card depends on when it was opened and what other accounts you have on your credit report. For example, that entry-level credit card collecting dust in your desk drawer might very well be one of the most important credit cards in your financial life if it’s the oldest account you have. On the other hand, closing a newer card that you don’t use may have less of a negative effect on your credit score.

Because everyone’s financial situation and credit history is different, the effects of closing an unused credit card – or keeping it open – can vary. You can get a sense of how different actions may affect your credit score through credit score simulators.

Another reason you may want to hang onto an unused card is if that card is no longer available to new applicants. Consider whether it has features you’d like to use in the future – especially if they’re features you can’t get anywhere else. Or, it may be worth keeping if the card that replaced it added an annual fee.

There are generally three reasons why you might want to close an unused credit card, regardless of the potential credit score benefits: temptation to spend, annual fees, or the inability to get a new credit card.

There’s temptation to spend. If having more available credit means you’ll use more credit, any financial benefits you get from keeping the card could be wiped out by extra spending. If you’re the type of person who would spend the same whether you have zero, one, or 100 credit cards, this may not apply to you. But if keeping a credit card open means more spending and less saving, the benefits of canceling it could be substantial.

There’s an annual fee. If you’re not using the benefits of an annual fee card, it may be a good time to cancel. But the decision isn’t always just between cancel and keep! Some cards can be “product changed,” or switched to a no-annual-fee version of the card from the same card issuer. A product change keeps your credit card account open and just changes the features of the card attached to that account. This way you may be able to enjoy credit score benefits of keeping an unused card open, without paying an annual fee.

You want a new card but can’t get one. Some credit card issuers limit how many cards an individual can have with them. If you’re at your maximum limit with a particular card issuer, want a new card from the same issuer, and can’t do a product change to get the new card, your only option may be to cancel one card to open a slot for the desired addition. Of course, this tends to be a rare situation.

If after considering the costs and benefits of keeping a credit card – or doing a product change – you decide you don’t want it anymore, there are a few things you’ll want to do first.

• Check to see whether you’ve accrued rewards on your account. If you have multiple cards from the same card issuer that earn the same kind of points or cash back, you may be able to transfer your accumulated rewards from the card you’re about to cancel to one you intend to keep. If you can’t, it’s worth finding a way to redeem rewards before canceling the card so you don’t forfeit what you’ve earned.
• If you have another card with the same credit card issuer, you may want to ask whether you can transfer your available credit limit to another card before closing the unused account. A bank willing to give you two cards with a $5,000 limit on each may let you have one card with a $10,000 limit. This way, you can close the card without hurting your credit utilization ratio.