If you have a credit card that you never use, you may be wondering how that may affect your credit score. Not using the card will not hurt your score, but closing it can affect your score negatively.
Have a credit card you never use?
Newer credit cards often have a lot more bells and whistles – rewards – than older credit cards. The rise of awards credit cards may have more than a few cards collecting dust in your wallet.
How will unused, dormant credit cards affect your credit score? Not using a credit card for an extended period of time will not hurt your credit score, however, closing your account may take a hit to your score. Understanding how unused cards affect your score can help you decide when taking the hit is worth it and when to wait.
Unused credit cards and your credit score
There are a lot of factors used to determine your credit score – the two biggest being payment history and your credit utilization. Depending on how many credit cards you have, this will change your credit limit and your overall credit utilization – which should typically be around or below 30%.
If you only have one credit card that you use every once in a while and you pay it off in full, on time, every time, you will slowly build a strong credit history. By only using a small amount of your credit limit, you are lowering your overall credit utilization. But, if you carry a credit card debt balance from month to left, make sure to check out your
If you have many credit cards, using them all actually becomes less important. A larger credit limit allows you to lower your credit utilization. In addition, for people with a lot of credit cards in their personal finance portfolio, it is normal to have a few cards out of use. If your unused cards have an annual fee, it may save you some money if you cancel it.
In addition, if cards are left dormant for a certain period of time, your credit card issuer or credit card company may close your account. Remember, if you have an inactive card, checking up on the inactive card can ensure that there are no fraudulent charges affecting your credit report and bank account. And, make sure inactive cards are paid off in full, or else you may rack up high amounts of interest depending on the interest rate on the card.
Impacts of closing a credit account
Closing a credit card product or service can hurt your credit score – even if you are not currently using the account. Closing one of your lines of credit impacts how and where the product affects your credit. Closing an account reduces the amount of compensation, which may impact your credit limit by lowering it. Lowering your credit limit will impact your credit utilization by raising it, which will decrease your credit score.
Cards with a lower credit limit will have little impact one your credit score. However, you may want to reconsider closing old credit accounts, as they may shorten your credit history, therefore impacting your score.
In addition, if a rewards credit card is closed, you may lose out on already received compensation and rewards. Be sure to cash out on any rewards before closing your credit accounts to get the most out of your credit cards.
Will closing a credit card impact my payment history?
If you are wondering how closing a credit card impacts your payment history, the short answer is that it does not. Closed credit accounts remain on your credit report for years, so if your card has a good record with no missed or late payments, it will continue to benefit your credit score.
Cards worth closing down
Some credit cards just are not worth keeping and should be closed if they are not in use. An example of this is secured credit cards. Secured cards are meant to help you rebuild credit or build credit if you are new to credit cards. Cancelling these cards will give you back your deposit – some credit card companies will even allow you to transition secured cards to unsecured credit cards.
In addition, if you have credit cards with low credit limits, card with feeds that are not worth it, or store credit cards from a place you no longer shop at, these cards may be worth closing down.
Your other options
Closing a credit card may not always be your best option. If you do not want to close a credit card because of how it may impact your score, you have a few other things to consider:
- Call your credit card issuer – Some credit card companies will allow you to change from one card to another that they offer. Call and ask to see if your credit card company has a card that better fits your personal finance needs. You can even downgrade to a card with no annual fee if you want to save on expenses.
- Put a small recurring charge on the card – If you want to avoid having a card closed due to inactivity, putting a small recurring charge on the card may be the answer you are looking for. Be sure to set reminders or autopay to never miss a payment. This not only preserves your credit score, but helps you build up a good credit card track record.
- Apply for a new card – If your credit card company does not have a card you want to switch to, finding a new card with a similar credit limit can help you replace the card you currently are not using. You can then close down the account you are not currently using.
Closing down unused credit cards can negatively affect your credit score. Weighing out all of your options before closing down a credit card is the best way to weigh out the risks and rewards of closing down a credit account.