You know that credit card you applied for in college, before that big trip or for the welcome bonus -- if you don’t use it anymore, does it hurt to close the account?
Our team of credit card experts gets asked a lot of questions about credit cards. Some might seem obvious. (Should I carry a balance? No.) Other questions are up for debate, including: Should you ever close a credit card?
The answer isn’t as simple as a yes or no. Here are some of their tips to help you decide.
Meet the experts
Should you close an unused credit card?
You may have heard that you should never close a credit card account because it could hurt your credit score. But you also may have heard you should always close a credit card account you’re not using to eliminate the temptation to overspend. It’s not always simple, but our credit card experts have broken down the factors to consider before closing an account.
Credit history
The experts agreed that this is one of the most common reasons people give for not closing a credit card -- because closing an account will shorten their credit history. But it’s not entirely true.
“There’s a myth that by closing your oldest card you make your credit report look younger,” said John Ulzheimer, formerly of FICO, Equifax and Credit.com. “As long as the card is on your credit reports you still get the value of the card’s age in your scores. And even when it’s closed, a card will continue to age.”
In fact, a closed credit card will continue to contribute to your credit reports (so long as it was closed in good standing) for 10 years, according to Experian.
Annual fee
Credit cards that charge annual fees aren’t inherently bad. But if you aren’t getting enough value from the card to offset the fee, you might automatically think it’s time to close the account. While this may be true, consider other options your credit card issuer may offer first.
“Look to downgrade to a no annual fee card from that same issuer first,” said Daniel Braun. “If no downgrade options exist that will get rid of the annual fee, then you might consider closing the card.”
If you have a credit card with no annual fee and can manage your account responsibly, you aren’t getting much benefit by abandoning the card.
“The one time that I would say to never close a credit card is for your oldest no-annual-fee accounts,” Braun said.
To avoid having the account closed by the issuer, consider using it to pay for a monthly subscription and setting up an automatic payment that covers the expense in full.
Credit usage
Closing a card could potentially hurt you if it increases your credit usage. Most experts note that keeping your credit usage, or credit utilization ratio, below 30% can help your credit score, but even lower is better.
For example, if you have two credit cards each with $1,000 credit limits and you have a $400 balance on one of them, your credit utilization ratio is 20%. But if you closed one of the credit card accounts, you’d lose $1,000 of available credit, so your credit utilization ratio would increase to 40%.
If those cards are from the same issuer, you could potentially combine the credit limits into one larger one, according to Mark Reese.
“It’s worthwhile to ask if you can move your credit line from the account you want to close to the one you will keep open,” Reese said.
You’re juggling multiple cards
If you’re considering closing a credit card only because you have multiple cards, you should be fine so long as you can manage them all responsibly, according to Gerri Detweiler.
“Having a lot of credit cards isn’t likely to hurt your credit scores, as long as you pay on time and keep balances low,” said Gerri Detweiler. “But it is important not to let a card slip through the cracks.”
On-time payments are the biggest factor when it comes to determining your credit score, and late fees could cause your balance to balloon quickly. So if you’re having trouble juggling the cards and making payments on time, it’s likely time to consider closing at least one of the accounts.
Credit mix
If you’re closing your only credit card account, that could negatively affect your credit mix, which is also a factor in your credit score. As a rule of thumb, keep at least one card open and in good standing.
“If you have a credit card with a long history, no annual fee, and you don’t mind putting a transaction on it roughly once every six months to keep it active, then it can help you maintain a higher score long term,” Reese said.
The bottom line
Closing a credit card isn’t always a bad idea -- especially if you aren’t using it enough to justify its annual fee. Just be warned, closing a credit card could lower your credit score. Removing one of your credit limits could increase your credit utilization.
Before you close your card because of an annual fee, first talk to your issuer to see if you can downgrade to a no-annual-fee version. If it’s an older credit account with no annual fee, think about holding on to it and charging a small purchase to it every few months to keep it active.
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