If you have a credit card account you don’t use anymore, you may wonder whether it’s better to close the account or keep it open. Canceling your unused card seems like a straightforward decision, but could closing a credit card impact your credit score? Let’s take a look at everything you should consider before making this move.

Impact of Credit Card Closure

When it comes to keeping a healthy credit score, credit utilization ratio and credit history are the two key factors. Closing a credit card may affect both. The impact of closing a card depends on your unique credit profile and financial goals.

Person hands a credit card to the cashier

First, your credit utilization ratio represents the percentage of your available credit that you're currently using. Generally, lenders view lower utilization as more favorable. For example, if you have two credit cards, each with a $5,000 limit, and you regularly spend $1,000 a month on one, your utilization ratio is 10 percent. But if you close one of those cards, your total available credit is cut in half, and your utilization ratio jumps to 20, even though your spending hasn’t changed. Higher utilization can signal to lenders that you are a greater default risk, which could lower your score.

Second, the longer your credit history, the better your credit score. Closing a credit card might reduce the overall length of your credit history, especially if it’s your oldest account. This could cause your score to dip since credit-scoring models favor accounts that have been open for a longer time. Lenders typically like to see a longer track record of responsible credit management.

Average Age of Credit Accounts

One of the chief inputs into your credit score is the length of your credit history, which you’ll see referred to as your “credit age.” Credit-scoring models like FICO and VantageScore consider this when calculating your score, and it’s weighted significantly. In fact, credit age accounts for 15 percent of your FICO score and is considered “highly influential” by VantageScore.

A longer, well-maintained credit history shows lenders that you have been able to responsibly manage debt in the past, which means you’re less likely to default. But when you close a credit card, you are effectively removing that account from your active credit history. This reduces the average age of your accounts, especially if the card you close is one you’ve had for many years. For example, if you close one of your oldest credit cards, the overall age of your credit portfolio will decrease, which could lower your score.

Credit Utilization Considerations

While credit age matters, it’s not the most significant element affecting your score. The largest component, accounting for around 30 percent of your score, is your credit utilization ratio. This ratio represents the amount of credit you’re using compared to the total credit available to you.

Let’s say you have two credit cards: one with a $1,000 limit and another with a $2,000 limit, and you currently have a balance of $750 across both. That gives you a credit utilization ratio of 25 percent ($750 out of $3,000). If you close the card with the $1,000 limit, your available credit drops to $2,000, and your utilization ratio jumps to 37.5%. Lenders typically prefer a credit utilization ratio below 30 percent, so an increase may cause your score to drop.

Effect on Available Credit

Closing a credit card directly impacts the amount of credit you have available. When you lose the available credit tied to the closed card, your total available credit shrinks, which also makes your credit utilization ratio increase. And because this ratio is so heavily weighted when it comes to calculating your credit score, this may result in a drop in your score, depending on your overall credit profile. Ideally, you want to have a lot of available credit, while only using a small portion of it, so it often behooves you to keep a credit card account open.

Credit Type Importance

Your credit mix describes the variety of different types of credit accounts in your portfolio, such as credit cards (revolving credit), student loans, auto loans, and mortgages (installment credit). A well-balanced mix of both revolving and installment credit types may boost your score – it shows lenders your ability to responsibly manage various forms of debt.

While having a diverse credit mix is beneficial, it accounts for only about 10 percent of your overall score. If you close a credit card and don’t have other forms of revolving credit, that could slightly lower your score because revolving credit plays a unique role in demonstrating ongoing debt management. Lenders look favorably on borrowers who can handle different credit types and show long-term stability with all of them.

Credit Mix and Closure

Keep in mind that closing a credit card may slightly reduce the variety in your credit mix, especially if it’s your only form of revolving credit. But – that impact is generally minimal compared to more significant factors like credit utilization and credit history length. Maintaining a balance between revolving and installment credit accounts over time can help mitigate any small drop from closing an account.

By the same token, it’s important to avoid opening new accounts just for the sake of improving your credit mix. This strategy could backfire since it adds hard inquiries to your report. Those hard inquiries could lower your score in the short term, and they may increase your overall debt, which impacts your credit utilization. Opening new credit without a clear financial need can also be seen as risky behavior by lenders.

Managing Unused Credit Cards

Before you close a credit card, consider these alternatives that could help you avoid potential negative effects:

  • Ask for a fee waiver: If annual fees are the issue, call your credit card company to ask if they’ll waive or reduce the fee. In some cases, card issuers may be open to negotiating fees for qualifying customers.
  • Downgrade to a no-fee card: Some issuers allow you to switch to a card with no annual fee while keeping your account history intact. This way, you avoid fees while preserving your credit history and available credit.
  • Use the card occasionally: If you’re worried about your card being canceled due to inactivity, set up a small recurring charge, like a streaming service subscription, to keep the card active without overspending.
  • Transfer balances to another card: If you plan to close a card with a balance, consider transferring that balance to another credit card with a lower interest rate. This avoids fees associated with maintaining multiple cards while also addressing the debt. Just be mindful of how this affects your overall credit utilization.

When Closing a Credit Card Might Make Sense

In some cases, closing a credit card could be the right move, even if it slightly impacts your credit score in the short term. Here are some situations where it might be worth it:

  • High annual fees: If your credit card charges an annual fee and you’re not using the benefits, it may not be worth keeping. Before closing the card, consider downgrading to a no-fee version to maintain your account history.
  • Temptation to overspend: If you struggle with managing your spending and tend to max out your cards, closing an account could help reduce temptation. Just be mindful of how this decision affects your credit utilization ratio.
  • Financial lifestyle changes: If you’re entering a phase of life where you need to simplify your finances – such as paying off debt, retiring, or consolidating accounts – closing a card can streamline your credit profile. However, make sure that taking this step won’t tank your credit score.
  • Potential for fraud: If you rarely use your card and are concerned about it being compromised by identity theft, closing it may give you peace of mind. However, monitoring the account regularly can also help detect unauthorized charges while still keeping the account open. In addition, cards like the Juzt Digital Credit Card integrate sophisticated digital security measures to safeguard user data and prevent fraud, so they may be a good choice if you’re worried about identity theft.

Credit Health Best Practices

If you do close a credit card, the following strategies can help you maintain – or even improve – your overall credit score:

  • Keep credit utilization low: Try to keep your credit card balances under 30 percent of your total available credit. If possible, pay off your balances in full each month.
  • Monitor credit history: Closing a card won't immediately erase its history from your credit report. Closed accounts in good standing will stay on your report for up to 10 years, continuing to influence your score positively.
  • Avoid opening new cards if you can help it: Opening new credit accounts means hard inquiries on your credit report, which may lower your score in the short term. Only apply for new credit when you truly need it.

Key Takeaways

Deciding whether to close an unused credit card is a personal choice that means carefully considering your financial goals and habits . While keeping an account open may boost your credit score by improving your credit utilization ratio and giving you a longer credit history, it could also lead to unnecessary spending or cost you in annual fees. If your credit card no longer serves you, consider whether changing to a no-fee version is possible, or whether the advantages of closing the account outweigh the potential dip in your credit score.

The information in this article is intended for general informational purposes only and does not constitute financial, legal, or professional advice. For advice specific to your financial situation, please consult a licensed financial professional.