Should You Cancel An Unused Credit Card?

A common question I get in workshops is, “Will it hurt my credit score if I close one of my credit card accounts?”  The answer is “maybe.”  But the reasons why or why not may surprise you.

It is commonly thought that, especially when it comes to a card you’ve had for a long time, you should not close the account.  That’s because credit history counts for about 15 percent of your credit score.  Close the account, the thinking goes, and you’ll erase some valuable history.  But not so fast.  According to a helpful story on Money Magazine’s More Money blog, closing an account will not wipe out the account’s history.  A spokesperson for Fair Isaac Corporation, the organization that determines your credit score, explained that after you close an account the credit agencies continue to maintain positive information about the account for about ten years and negative information for about seven years.

However, there is a way that canceling a card may hurt you.  It has to do with what’s known as credit utilization.  That’s the percentage of available credit you are using at any given time.  A lower credit utilization works to your favor.  By closing an account, you will lower your total available credit, which will likely leave you with a higher credit utilization.  If you only use five percent of your available credit at any given time and closing an account will push that to ten percent, you probably don’t have anything to worry about.  Using 10 percent or less of your available credit is ideal; 30 percent is usually seen as okay.

So, when thinking about closing an account, you don’t need to worry about its impact on your credit history.  But you should give some thought to its impact on your credit utilization.


One Response to Should You Cancel An Unused Credit Card?

  1. Melissa March 15, 2011 at 12:59 AM #

    Hi Matt,

    I was just reading this and I wondered what I should do because I’m trying to improve my credit score as well as get a credit card with cash back on it. I have a 764. I have a Macy’s card I never use which I’ve had for maybe five years, a Chase card I finally paid off, and the Barclaycard which I got when I bought my Mac but I didn’t really know I said yes to it. When I found out that I could only get a $500 limit on it, I decided to put it on a different card that I had a higher limit on it and I never used the Barclaycard. When ordering my credit report after your suggestion, I realized that it was on my report. My question is, can I close the Barclaycard, the Chase card, and the Macy’s without having it ding my credit, or should I keep them open? I read your article about that. I don’t tend to put much on my credit card, because I’m paying off some debt (less than $5000) on a card at the moment. I definitely don’t want to get into more debt but if I’m going to use credit and then pay it off, I’d like to get a card where I get cash back. Do you have thoughts on this, or other articles you wrote that address this?

    Thanks for your help!

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