6 Min Read | Updated: October 15, 2023
Originally Published: May 2, 2022
Should You Cancel Unused Credit Cards or Keep Them?
Find out whether you should cancel or keep unused credit cards for a healthier financial future. Learn how they can impact your credit score, financial habits, and more.
At-A-Glance
Keeping an unused credit card open can benefit your credit score – as long as you follow good financial habits.
If an unused credit card tempts you to unnecessarily spend or has an annual fee, you may be better off canceling the account.
In some cases, you might be able to keep an account open without the cost by switching to a no-annual-fee version of the unused card.
If you have a credit card you don’t use, you might be wondering whether you should cancel it. It seems like a simple enough question, but the answer is nuanced. Keeping that account open may benefit your credit score. However, there are some cases where it might make sense to close your account.
What Is an Unused Credit Card?
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.
Why You Might Want to Keep Unused Credit Cards Open
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.
Why You Might Want to Close an Unused Credit Card
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.
Things to Do Before You Cancel an Unused Credit Card
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.
FAQs on Cancelling Unused Credit Cards
How does closing a credit card affect your credit score?
In the short term, closing a credit card that you’re not using may negatively impact your credit score. This is due in part to the decrease in your total credit limit as well as the increase in utilization. If your card is the oldest item in your credit history, your score could also decrease since you will be lowering the average age of your credit history.
Will closing a card damage my credit history?
Closing a credit card, especially your oldest credit card, can negatively impact your credit. However, there are steps that you can take that can help you to maintain and build good credit over time.
How do you keep your utilization rate low?
Having multiple credit cards, getting increases in your available credit, keeping charges on your cards low, and paying off your balances can all help you to keep your credit utilization rate low.
The Takeaway
Deciding whether or not you should cancel an unused credit card involves weighing pros and cons that are often hard to compare. Keeping a card open can help your credit score, but it could also lead to more temptation to spend or could cost you an annual fee. Changing your card into a no-annual-fee version – if that’s possible – can solve the latter problem. But only you can decide whether you’ll be financially healthier with or without the card.
Matt Crespi is a writer, consultant, and social science researcher focused on innovation, policy, and organizational behavior. He earned his PhD in Public Policy and Management at Carnegie Mellon University, where he co-founded the Corporate Startup Lab.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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