Many people often wonder whether they should close their unused credit cards. While it may seem logical to cancel a card that is no longer used, the decision isn’t always so black and white. Closing a credit card can firstly impact one’s credit score, not only causing trouble now but even in the future for any credit related deals or even to get a loan. On the other hand, keeping too many open accounts may increase the risk of fraud or tempt the user to overspend. In this discussion, we’ll explore the pros and cons of closing unused credit cards, to help you decide whether its worth closing or to wait it out
Why would someone want to close an unused credit card?
People often want to close unused cards to simplify their finances, avoid potential fees and reduce the risk of fraud. If a card is not in use, it can feel unnecessary to keep it open, especially if it has an annual fee or if the person is trying to limit their access to credit to control spending.
What are the benefits of closing an unused credit card?
- With fewer active cards, there’s less risk of using credit impulsively and also managing fewer accounts means fewer bills, due dates and statements to track.
- An inactive card might go unnoticed if compromised, so closing it removes that risk. Some cards charge annual or inactivity fees, so closing them can prevent unnecessary costs.
- Fewer open accounts can ease anxiety and help the user focus on active and more meaningful financial tools.
What are the risks of closing an unused credit card?
- When a credit card is closed, the credit score is impacted since utilisation is the key point of bettering one’s credit score.
- If the card is one of the oldest in the user’s wallet, closing it can reduce their average account age, which is another factor in credit score.
- With a lower overall credit, even small balances on other cards can raise a person’s credit use rate.
- The most detrimental effect is that a drop in credit score can make it harder or more expensive to qualify for future credit like home loans.
- Not to mention, any accumulated rewards, cashback or points could be lost if not redeemed before closure.
When is it a good idea to close an unused credit card?
- When the card charges high fees and the person is not using the benefits.
- If the card’s limit is low and won’t impact the user’s credit utilisation significantly.
- If the user is consolidating accounts and wants to simplify their credit mix.
- When one is trying to avoid overspending or financial distractions.
Also read: Want to Save Big While Studying Abroad? Get One of These Forex Cards!
When should someone keep an unused credit card open?
- If the card has no annual fee then it doesn’t cost anything to keep it open.
- If it’s one of their oldest accounts and therefore it contributes positively to one’s credit history length.
- If the credit limit is high, it helps maintain a low credit utilisation ratio.
- If there is a need to access emergency credit at some point.
Can closing a credit card hurt a person’s credit score immediately?
Yes, in many cases it can, especially if it impacts the credit utilisation ratio or reduces the age of their credit history. The effect isn’t always dramatic, but it can be noticeable, especially if a person is planning to apply for a loan soon. It’s often smarter to pay off the card and leave it open if you want to maintain or improve your score.
What’s the final verdict then, should you close it or keep it?
It depends on an individuals financial goals. If the card is costing money and not providing any real benefit like helping improve the credit score or is adding to financial stress, then closing it might be the right move. But if it’s fee-free, boosts one’s credit score by increasing available credit, or adds to the credit history, keeping it open could be more beneficial. The key is understanding how the card fits into one’s overall financial picture before making a decision.
Written by Teertha Ravi
