Credit cards offer a host of benefits, from earning rewards to providing security on purchases. But what if you have a card you’re not using? Should you keep it or close the account? Let’s explore both sides of the argument to help you make the best decision.
Reasons to Keep Your Credit Card Open
This Article Includes
Improving Your Credit Utilization Ratio
Your credit utilization ratio, or the amount of credit you’re using compared to your available credit, makes up 30% of your FICO® Score. By keeping an unused credit card open, you maintain a higher credit limit, which can help lower your utilization ratio and improve your credit score.
For example, if you have three cards with a total credit limit of $20,000 and $5,000 in debt, your utilization ratio is 25%. But if you close a card with a $4,000 limit, your ratio would jump to 31%, which could hurt your credit score. Keeping that card open might be a better move until you can pay off more of your balance.
Extending Your Credit History
Length of credit history accounts for 15% of your FICO® Score. Even if you’re not using a particular card, its age can positively impact your score. A long-standing credit card in good standing shows that you’ve successfully managed credit over time. Closing it might reduce the average age of your accounts and lower your score.
Reasons to Close Your Credit Card
Paying an Annual Fee
If you’re paying an annual fee for a card that no longer offers valuable rewards or fits your spending habits, it may be time to close it. You can always ask the issuer to waive the fee, but if you’re not using the card, it’s likely not worth the cost.
Temptation to Spend
Credit cards can be tempting. If you’re at risk of overspending, especially with a high interest rate (the average was 22.76% in May 2024), it might be smarter to close the account and remove the temptation.
Final Thoughts
Keeping an unused credit card open can help your credit score, but if the card costs you money or tempts you to spend, closing it might bring peace of mind. Ultimately, it’s about balancing what works best for your financial situation.
