Closing a credit card can hurt your credit score, but does that mean you have to leave credit cards open forever to protect your credit score? If you're trying to keep your credit score in good standing, you'll want to be careful about which credit cards you keep open and which you close.
Considerations for Each Type of Credit Card
You may have a few different types of credit cards. These can include those from hope improvement and furniture stores, merchant cards, gasoline cards, and major credit cards. Closing each type of card should be approached differently.
New or First Credit Card
If you’ve just started using credit and recently got your first credit card, it's best tokeep that card open for at least six months. That's the minimum amount of time for you to build a credit history to calculate a credit score. Keep your first credit card open at least until you get another credit card.
Rewards Back Cards
Closing your rewards credit cardmay cause you toforfeit rewards you haven't used yet. If you racked up a nice signup bonus or you’ve accumulated rewards over the past several months, keep your credit card open long enough to use your rewards.
Note
You may be able to transfer your rewards to another program. Check the terms of your rewards program to learn whether you can transfer your rewards.
Unused Credit Accounts
Unused credit cards carry a risk of fraud. If you aren't using the credit card, it may take you longer to detect fraudulent charges. Plus, your credit card issuer may deactivate or cancel your credit card if you don't use it for several months. Use your credit cards periodically and always read your billing statements, even if you think you have a zero balance.
Secured or Other Cards for Bad Credit
Rebuilding a bad credit history sometimes means accepting credit cards with high-interest rates, low credit limits, annual fees, or security deposit requirements. While these credit cards are great for proving that you’ve rehabilitated your bad credit habits, they’re not keepers. You can close one of these "starter" credit cards as soon as you're able to qualify for something better. When you're building or rebuilding your credit score, aim to qualify for better and better credit cards.
Low Limit Cards
Credit cards with low credit limit are also candidates for closing, especially if you have other credit cards with higher credit limits. It's not that the low limit credit cards are hurting your credit score, just that these credit cards with low limits aren’t benefiting you.
It's likely that your low limit credit cards are store credit cards with high-interest rates and aren’t the most attractive credit cards in the first place. Plus, the low credit limit only allows you to charge a small amount before the credit utilization is too high.
After a Late Payment
While you’ll be charged a late fee if your payment isn’t received by the due date, the credit bureaus aren’t notified until your payment is at least 30 days past due. Two late payments, however, can lead to an interest rate increase that will last a minimum of six months. If your credit card terms allow the credit card issuer to leave the penalty rate in effect indefinitely, you may consider paying off the balance and closing the credit card.
Note
Closing your credit card doesn’t erase the credit history from your credit report. The late payments will still be reported for the seven-year credit reporting time limit.
Credit Score Impact
Deciding not to keep a credit card open can impact your credit score, especially if your credit card had a nice amount of available credit. Your credit score benefits from low credit utilization: when the ratio of your credit card balances to their credit limit is low.
A credit card with a high limit helps your credit score the most when some of your other credit cards have balances; the available credit on one credit card lowers your overall credit utilization. But if all your credit card balances are low, i.e., below 30% of the credit limit, closing one card shouldn’t hurt your score too much.
Reviewing Your Credit Cards
Keeping your credit cards open won’t hurt your credit score. Review all your credit cards periodically to compare the terms on each. You may consider keeping those with low-interest rates, high credit limits, or the best rewards program and closing the rest.
FAQs
If you don't use a credit card for a year or more, the issuer may decide to close the account. In fact, inactivity is one of the most common reasons for account cancellations. When your account is idle, the card issuer makes no money from transaction fees paid by merchants or from interest if you carry a balance.
Is it good to keep unused credit cards open? ›
Keeping the card open can help maintain a healthy credit score by contributing to your credit history and utilization ratio. However, there are valid reasons to consider canceling, such as high annual fees or difficulties managing multiple accounts.
How long should you keep a credit card open? ›
You can keep a credit account open as long as you'd like without harm to your credit. Even if you've stopped using the card regularly, it could still make sense to keep the account open, depending on how extensive your credit history is and the amount of debt you currently owe.
Is it better to close a credit card or leave it open with a zero balance? ›
Your credit utilization ratio goes up
By closing a credit card account with zero balance, you're removing all of that card's available balance from the ratio, in turn, increasing your utilization percentage. The higher your balance-to-limit ratio, the more it can hurt your credit.
Is it bad to let a credit card go inactive? ›
Credit card inactivity will eventually result in your account being closed. A closed account can have a negative impact on your credit score, so consider keeping your cards open and active whenever possible.
How often do I need to use a credit card to keep it active? ›
You should use your credit card at least once every three months to keep it active. However, make sure you use it more often than that if you want your credit score to improve at a faster rate.
Is it OK to open a credit card and never use it? ›
The other risk of leaving a card inactive is the issuer might decide to close the account. If you haven't used a card for a long period, it generally will not hurt your credit score. However, if a lender notices your inactivity and decides to close the account, it can cause your score to slip.
Should I keep my credit card open after paying it off? ›
The bottom line
Ideally, you'll keep your card open while you pay off your debt to avoid an impact on your credit score, as well as to have access to this line of credit for emergencies. That said, you may decide to close a card just because you feel it's right for you. Only you know what you can handle.
What happens if you never use a credit card? ›
If you don't use your card, your credit card issuer may lower your credit limit or close your account due to inactivity. Closing a credit card account can affect your credit scores by decreasing your available credit and increasing your credit utilization ratio.
When should you not close a credit card? ›
It's a good idea to avoid closing the credit card you've had the longest, as this will significantly decrease the length of your credit history, and thus more negatively impact your credit score.
Key takeaways: Closing a credit card can hurt your scores because it lowers your available credit and can lead to a higher credit utilization, meaning the gap between your spending and the amount of credit you can borrow narrows. Canceling a card can also decrease the average age of your accounts.
When should you lay off your credit card? ›
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
Is it bad to keep a zero balance on a credit card? ›
Keeping a zero balance is a sign that you're being responsible with the credit extended to you. As long as you keep utilization low and continue on-time payments with a zero balance, there's a good chance you'll see your credit score rise, as well.
How do I get rid of a credit card without hurting my credit? ›
Consider downgrading the card to a no-annual-fee version if possible. Pay off any remaining balance before closing the card. If you can't do this, consider transferring the balance to a low interest rate credit card, or talking with your card issuer about a payment plan. Redeem your rewards.
How to keep a credit card open but not use it? ›
Here are a few things you can do to avoid the risk of having your account shut down by your card issuer.
- Keep it in your wallet and use it for small purchases. ...
- Put a small recurring charge on the card. ...
- Make it your primary card for an online shopping account. ...
- A closed account could lower your available credit.
You usually have 45-60 days to activate a new credit card before your credit card issuer sends you a message or cancels your account. Not activating may affect your credit score because your credit utilization ratio or credit mix may be impacted if your card issuer closes the account.
What happens if I don't reactivate my credit card? ›
If you don't activate your credit card, it remains inactive and cannot be used for any transactions. However, the card may still incur annual or maintenance fees, and it might eventually be closed by the issuer after a certain period of inactivity.
Can credit cards be automatically closed due to inactivity? ›
If you haven't used your card for several months, your credit card issuer may close your account for inactivity. If you aren't using the card, the issuer isn't making any money from "swipe fees" — or the fees it charges merchants when you make a purchase with your card.
Can you reopen an inactive credit card? ›
More often than not, issuers will let you reopen a closed credit card account. But your request may be unsuccessful if your timing doesn't abide by the issuer's policies.
