Why you shouldn’t cancel a credit card even if you’re not using it

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  • Canceling a credit card that you are not using can often do more harm than good.
  • You don’t have to close a long-open credit card or a card with a high credit limit. Closing the account could negatively affect your credit history and use of credit and, in turn, lower your credit score.
  • However, you may want to consider canceling a credit card and affecting your credit score if the card has high annual fees.

It feels good to get rid of things you don’t use. This is why Marie Kondo has become such a sensation, helping people extract joy from their clutter and throw the rest away. But when it comes to credit cards, it’s best to hang on to the old ones, even if they’re gathering dust.

Two important factors in composing your credit score are credit history and credit usage, or the percentage of your available credit limit that you use each month. People with excellent credit have an average of over 20 years of credit history and keep their utilization rate below 30%, according to an analysis by LendingTree. If you’re thinking about canceling a credit card that might affect these factors, you might want to reconsider.

“You need to keep old accounts open to increase your credit score because scoring algorithms look favorably on long standing accounts and no longer available credit,” Ted Rossman, analyst at Bankrate, said in a recent report.

Bankrate surveyed over 2,000 Americans about canceling credit cards and found that the main reasons for it were paying off debt, not using the card enough, and having too high an interest rate. Twelve percent of respondents even said they canceled a credit card to improve their credit score.

The degree of impact of closing a line of credit on a person’s credit rating depends in part on the number of accounts opened, the size of their balances, and their overall credit limit, Tom Quinn, vice president of scores at FICO, told Bankrate. It’s important to note that this will almost never give you a positive boost.

The FICO model classifies credit scores as bad (300-579), fair (580-669), good (670-739), very good (740-799), and excellent (800-850). The three-digit number is an indicator of your reliability as a borrower. If your credit rating is low or zero, buying a house, renting an apartment, taking out a loan or opening a new credit card won’t be easy.

Quinn said the biggest impact of closing a credit card occurs when the credit limit is high. In other words, it’s best to keep a credit card that’s 50% of your total credit limit. If it doesn’t offer the best rewards, that’s okay – give it one or two payments every month to keep it active and use better rewards cards for your other purchases.

However, there are at least two good reasons to close a credit card and challenge your credit score potential. If the temptation to spend is too much, or if you’re paying a high annual fee for a card that you don’t use or get great rewards for, canceling the card may be the best option.

But keep in mind that it will likely take time and diligence to restore your credit rating after canceling a credit card, so don’t do this before buying a home or applying for a loan. .

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