Should I Close My Credit Card if I Don't Use it?

Is an old credit card taking up valuable real estate in your junk drawer? If you have a credit card you rarely or never use, you may be wondering, “should I close my credit card?” 

If you’re no longer actively using it, your first instinct may be to simply close down the credit card. With the way credit scoring works, however, this might not be a great idea.

This guide will set the record straight. Should you close a credit card, or keep it open?

Should I close my credit card?

The answer to this question depends on a few main factors:

• Does the credit card have an annual fee? If so, it may make more sense to close it.

• Is it an older card that you’ve had for many years? It’s typically wise to keep older cards open to benefit your credit score.

• Do you have other old credit cards you’ll be keeping open? If you have several credit accounts that have been open for years, closing one of them will have less of an effect. 

Let’s break things down further by exploring how closing a card can impact your FICO score.

How does closing a credit card affect your credit score?

Closing a credit card can affect your credit score negatively, but this depends on a few different factors.

Generally speaking, it’s smart to keep old credit cards open. That’s because of the credit rating factors that go into calculating your credit score. 

Two rating factors can be affected by the closing of old credit cards:

• Credit utilization, which refers to the percentage of credit you have available that you’re actively using. For instance, if the total of all your credit card limits adds up to $10,000, and you have a $2,000 balance, your credit utilization is 20%. Credit utilization makes up around 30% of your credit score. 

• Length of credit history, which is calculated based on the average age of your credit accounts and the age of your oldest and newest account. Length of credit history makes up about 15% of your credit score. 

Given this information, should I close a credit card I don’t use? Let’s look at how closing a credit card could impact the above two rating factors.

Credit utilization

When you close a credit card, you lose the credit limit associated with that card. 

Using the same formula as above, let’s say you have $10,000 in credit available to you and currently hold a balance of $2,000. Your credit utilization is 20%. 

If you then close one of your cards that has a $3,000 limit, your total available credit will drop to $7,000. At that point, your credit utilization would be 28.6%, instead of the 20% you had before. 

So, even though you didn’t add any more debt, you’d use more of your available credit limit. In some cases, this can have a negative impact on your credit score. 

Length of credit history 

The three main credit bureaus also look at the length of time you’ve had credit available to you when calculating your credit score. The “average age of accounts” is a significant factor, in addition to the age of your oldest credit account. 

If you close a credit card you’ve had for a long time, it can lower your average age of accounts. And if the card happens to be your oldest open account, the situation is a bit different. 

Should I close my credit card if it’s my older account? It’s better not to, as closing your oldest card can have an even greater negative impact on your FICO score.

What to do with old credit cards

If you decide to close your credit card, you can simply contact the card provider to close the account. Then, dispose of the card by cutting it up into small pieces and throwing it away. If the card is metal, the issuing bank can mail you an envelope so you can mail it in for safe disposal. 

If you have any automatic payments set up to go to the card, be sure to switch your billing details over to a different card. 

If you decide to keep your credit card open, but you don’t plan on actively using it, it might make sense to still use it every once in a while. At least once per year, try to use your card to purchase something small. Then, pay off the balance immediately. 

This will ensure the card stays open. If you aren’t using the card, the issuing bank may close it for inactivity after a certain amount of time. 

So, should I close my credit card or not?

If the credit card doesn’t have an annual fee, it’s usually a good idea to keep it open. This can potentially help your credit score — and a good credit score can provide many benefits in life. Remember to use the card once a year or so to ensure it doesn’t get closed automatically. 

If the credit card does have an annual fee, it’s likely worth closing. Keep in mind, however, that this can sometimes have a negative impact on your credit score. 

Want to learn more about credit and personal finance? Explore the rest of the Tally blog.

And if you have credit card debt you’re trying to pay off, Tally† may be able to help. Tally is an app offering a lower-interest line of credit that helps qualifying Americans consolidate their debt and pay off credit card debt faster. Learn how Tally works here. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.