Should I Close Credit Card Accounts I Don’t Use? Pros and Cons[yoast-breadcrumb]
Should I Close Credit Card Accounts I Don’t Use? Pros and Cons
Hey there! If you have some unused credit cards just sitting around collecting dust, you might be wondering if you should close those accounts. This is actually a pretty common question that comes with some pros and cons to think about. I’ll walk through all the factors you should consider when deciding whether or not to close an unused credit card account.
How Closing Accounts Can Impact Your Credit Score
First things first – closing a credit card account can definitely impact your credit score, which is a key factor to think about. Here are some of the potential effects:
- Closing your oldest credit card account can shorten your credit history, which accounts for 15% of your FICO credit score
- Having fewer total accounts can reduce your overall credit mix, which is 10% of your score
- Lowering your total available credit by closing accounts increases your credit utilization ratio, which is 30% of your score
So in summary – closing accounts can negatively impact the length of your credit history, your mix of credit, and your utilization ratio – 3 key factors in your score!
That said, the impact depends on your specific situation:
- If you have a long credit history, closing a newer account likely won’t affect your score much
- If you have lots of other accounts, losing 1 won’t impact your mix of credit too badly
- If you don’t carry balances, utilization won’t change much since you’re not using the cards anyway
The impact also depends on how high your score is – if it’s already excellent, a small drop won’t change your approval odds much. But if your score is fair or bad, even a small hit could make you less likely to be approved for credit.
Weighing the Pros
Ok, so closing accounts can potentially hurt your credit – but why might you want to close them anyway? Here are some of the pros:
- Avoid paying annual fees – cards with annual fees are obvious ones to close if not using them
- Reduce clutter and simplify your finances – fewer cards to track can make life easier
- Limit temptation to overspend – fewer open accounts reduces available credit
- Help separate finances after divorce or separation
- Protect against fraud if card is lost or stolen
As you can see, there are definitely some benefits to closing unused accounts. Eliminating annual fees, simplifying your wallet, and reducing fraud risk are all great reasons to consider it.
You might also close accounts if you’re struggling with debt or overspending. Removing temptation by lowering your available credit limits can be financially prudent if you’re working on managing your spending.
Tips to Minimize Impact on Your Credit
If you do opt to close some unused credit cards, there are couple tips that can help minimize the impact on your credit:
- Leave your oldest accounts open – closing these has the biggest effect on credit history length
- Close newer, less-used cards first if possible – these likely matter less
- Reduce limits on cards before closing if you can – this keeps your utilization lower
- Ask issuers to change account status to “closed by consumer” instead of “closed by credit grantor”
Basically, be strategic about which cards you close, and take steps to keep your utilization ratio low. This will help soften the blow to your credit.
Alternatives to Closing Accounts
Instead of closing your accounts altogether, you may want to consider these alternatives instead:
- Ask the issuer for a product change to a fee-free card to avoid annual fees
- Reduce credit limits without closing the accounts to lower utilization
- Simply charge a small purchase once or twice a year to keep accounts active
- Sock drawer the cards – keep them open but tucked away to simplify
With these options, you can often reap the benefits of closing accounts without suffering as much credit score damage.
The Bottom Line
At the end of the day, whether closing unused credit cards makes sense comes down to your specific situation. The pros are reducing fees, simplifying finances, limiting temptation to overspend, and potentially separating finances. The big con is potentially hurting your credit score.
If you do choose to close accounts, be strategic about which ones, and take steps to minimize the credit impact. Alternatives like product changes, lowering limits, or sock drawering cards are worth considering too.
Evaluate your own reasons for wanting to close accounts, look at your credit profile and scores, and weigh the pros and cons. This will help you make the best choice for your financial situation. The right answer is different for everyone.
Hope this gives you a comprehensive overview of the things to think about! Let me know if you have any other questions.