Most of us reach for specific credit cards when making purchases, both in person and online. There are also likely credit cards that you use for recurring charges such as gym memberships, streaming services or home-delivery apps. But, what happens if you don’t use your credit card? If you have unused credit cards, you may wonder if you should close these accounts. We’ve asked experts if it is better to close a credit card or leave it open with a zero balance. Before you cut up any cards, first consider their advice.
What happens if you cancel a credit card?
There are a few things to consider when deciding whether to close a credit card account. You may first wonder if it hurts your credit to close a credit card account, but credit scores are only one factor that must be considered. Other implications must also be weighed carefully.
“If you are considering closing a credit card because it has a high annual fee, you are tempted to overspend, or because it is no longer of use to you, don’t focus solely on the credit score,” says Christina Roman, consumer education and advocacy manager at Experian.
Keep in mind if there’s a dip in your credit score due to a credit card account closure, it should quickly rebound as long as you maintain good payback habits. “If you are not planning to apply for new credit in the next three to six months, your credit scores will likely recover by the time you are ready to apply,” assures Roman. “You shouldn’t let a temporary change in your credit scores deter you from making a decision that may help you improve your overall financial health in the long run.”
On the other hand, Roman says that if you have plans to apply for other forms of credit, such as an auto loan or a mortgage you may want to hold off on closing a card at least temporarily. “While score impacts from closing a credit card are usually minimal and scores recover quickly, it’s still best to avoid any changes to your credit history before applying for a new form of credit,” she says. “This can help ensure your credit scores are in good shape before you apply for credit.”
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Obviously, canceling a credit card may help you avoid the temptation to overspend. If it’s there, you may be tempted to use it. So, if you feel as though you are utilizing credit cards to live beyond your budget, Roman says closing a credit card can help to reduce that temptation. Another reason a consumer may choose to close a credit card is because they are paying an annual fee for a card not being used. If you do indeed cancel, it could be a good idea to allocate any saved annual fees to existing balances on other credit cards you hold.
One other thing to keep in mind – If canceling a card, especially one with a high credit limit, it could drastically increase your credit utilization rate, so it may be a good idea to work on paying down your other card balances first to avoid a negative hit to your credit score, Roman says. Your credit utilization ratio accounts for 30% of your credit score, so it’s important to maintain a healthy ratio – especially should you cancel unused credit cards as this will lower your total overall credit available.
If the only reason you’re canceling a card is because you don’t use it very often, you may still want to keep it open. Longevity could work in your favor, so before closing a credit card account that you have had for a long time, consider whether you might want to use it down the road.
“If you have a history of overspending or recently paid off a high credit card balance, it can feel tempting to want to close that account; however, it’s smartest to leave your old credit accounts open,” says Alia Dudum, money expert at LendingClub, a digital marketplace bank. “If you’ve had a card for a long time or one that has a high credit limit, it will help your credit score to keep it open.”
She adds that if it’s an older card, it can contribute to your credit score in the form of the length of your credit history. But, if you are debating closing an account because the credit card has a high annual fee, consider switching or downgrading that card to one from the same bank that has a lower or no annual fee, that way your line of credit is still intact, she says.
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Also, if you anticipate future use, make a small purchase with the account periodically and pay it in full as credit card issuers may choose to cancel your card due to inactivity if it’s not being used. The timeline can vary by issuer, but if you’re not planning to cancel the card, consider using it to make a small purchase every month or two in order to keep it active.
Does it hurt your credit to close a credit card?
When you close a credit card, you lose the available credit limit on your account. As stated above, this can affect your credit utilization rate, which in turn can lower your credit score. “Ideally, you should pay off your balance in full each month. At a maximum, your balances should be below 30 percent in total and for individual cards,” says Roman. “While any balance can affect scores, exceeding 30 percent utilization is a strong indicator of risk and scores will drop more rapidly.”
Keep in mind how much a credit score decreases after a credit card closure will depend on a cardholder’s personal credit history. However, Roman assures that the change in credit scores is typically minimal and short-lived. “After just a few billing cycles it will become clear that the utilization rate did not change because of a sudden increase in credit card balances, but rather because of a reduction in available credit limit,” she says. “At that point scores tend to rebound, assuming there are no other significant negative changes, for example, late payments.”
Above all, Roman says that your concerns about the impact closing a credit card will have on your credit score should not keep you from doing so if it is the best move to protect your financial health. If you are having trouble resisting the temptation to overspend, she says that closing the card may be the better move for your financial future.
Frequently asked questions about canceling unused credit card accounts
How long does it take for a credit card to close?
If it’s your decision to cancel a card, it usually takes effect immediately. It’s always a good move to apply for an updated copy of your credit report after the fact to make sure the account was indeed closed.
How to cancel a credit card
You’ll first want to pay off or transfer any balances that may remain. Also, if you have rewards, make sure you redeem or transfer them before canceling your account, as unredeemed rewards can no longer be used after an account closure. You should also be aware of any annual rewards that may come with the card, such as travel credits.
If you have authorized users on the account, you’ll want to let them know you’re canceling the account before you take action. Finally, contact your credit card issuer to terminate the account. You may be able to do this online, but it may be easiest to call the number on the back of your card and speak directly with a customer service representative.
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Can your card issuer cancel your card due to inactivity?
Yes. According to Roman, in some instances, lenders will close accounts with no activity for an extended period of time, but should notify you before doing so.
Is it better to close a credit card or leave it open with a zero balance?
It’s a personal decision whether it makes sense to close an unused credit card account. Your financial situation and unique spending habits should be considered. That said, it isn’t bad to have a zero balance on a credit card, so it’s important to note that if you decide to leave your account open with a zero balance, this shouldn’t hurt your credit score.
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