Should I Close My Credit Card If I Don’t Use It?

Managing credit cards wisely is a cornerstone of financial health, but what should you do with a card you don’t use? Closing a credit card might seem straightforward, but its implications can be more complex. In this guide, we’ll explore the benefits and drawbacks of closing an unused credit card, when it’s a good idea, and the steps to take if you decide it’s the right move.
Understanding Credit Card Accounts
Credit cards play a pivotal role in determining your credit score. Whether or not you actively use a credit card, its status impacts critical factors like your credit utilization rate, credit history length, and overall creditworthiness.
Key Terms to Know:
- Credit Utilization Rate: The percentage of available credit you’re using. Lower utilization signals responsible borrowing.
- Credit History Length: A more extended credit history positively affects your credit score.
- Credit Inquiries occur when you apply for new credit, which can temporarily lower your credit score.
Some people close unused credit cards to simplify their finances or avoid fees, but the ripple effects can be significant.
Pros of Keeping Unused Credit Cards Open
1. Positive Effects on Your Credit Score
Unused credit cards can help maintain a low credit utilization rate, an essential factor in your credit score. They also contribute to the length of your credit history, especially if the card has been open for many years.
2. Potential Perks and Benefits
Even if you’re not using the card frequently, it may offer rewards, cashback, or other benefits. Some cards include travel insurance or purchase protection, which can be valuable even for infrequent use.
3. Increased Financial Flexibility
Access to additional credit can provide peace of mind in emergencies or unexpected expenses. It’s also helpful for spreading out larger purchases while maintaining a low utilization rate.
Cons of Keeping Unused Credit Cards Open
1. Risk of Fees
Some credit cards have annual fees that may not justify keeping them open, especially if the card doesn’t align with your financial goals or spending habits.
2. Fraud Vulnerability
Unused accounts can be targets for fraudulent activity. You might miss unauthorized transactions if you’re not regularly monitoring your account.
3. Potential Overextension
Keeping multiple cards open can tempt overspending or make it harder to track accounts, leading to missed payments or financial mismanagement.
When to Consider Closing a Credit Card
Closing a credit card might be a wise choice in specific scenarios, such as:
- High Annual Fees: If the fees outweigh the card’s benefits.
- Misalignment with Financial Goals: When the card no longer serves its purpose, such as travel rewards for someone no longer traveling.
- Simplification Needs: Reducing the number of accounts to manage can streamline finances.
How to Close a Credit Card Responsibly
1. Pay Off the Balance
Ensure the card has a $0 balance before initiating the closure process.
2. Redeem Rewards
Use any accumulated points, miles, or cashback rewards, often forfeited when the account is closed.
3. Notify Your Credit Issuer
Call the issuer to confirm your account is in good standing and request closure. Document all correspondence for your records.
4. Monitor Your Credit Report
Check your credit report after closure to ensure the account reflects as “closed,” and no unauthorized activity has occurred.
Alternatives to Closing a Credit Card
1. Downgrade to a No-Fee Version
Many issuers allow you to switch to a no-annual-fee version of your card, letting you maintain your credit history without incurring costs.
2. Use the Card for Small Purchases
Making occasional purchases and paying off the balance in full can keep the account active without significantly impacting your finances.
3. Balance Transfers
Transfer any balance to a card with lower interest rates or better terms to maximize benefits.
Make the Best Decision for You
Deciding whether to close an unused credit card requires careful consideration of your financial situation and goals. While keeping the card open can benefit your credit score and provide financial flexibility, there are valid reasons to close a card, such as high fees or personal preference. By understanding the potential impact and taking the proper steps, you can make the best decision for your financial health.
Explore UCCU’s Financial Tools
UCCU offers a range of tools to help you manage your credit, monitor your financial health, and make informed decisions. Check out our Credit Cards and Financial Education Resources to learn how we can support your financial journey.