Closing an unused credit card might seem straightforward, but its implications on your credit score are worth understanding in greater depth.
At a Glance
- Closing a card affects credit utilization and average account age, impacting your FICO® Score.
- Credit utilization ratio, 30% of your score, can increase when credit limits decrease.
- Older cards bolster your credit history length, which makes up 15% of your score.
- Closing cards with fees might be sensible if they offer little value.
Impact on Credit Score
Closing an unused credit card can lower your FICO® Score by affecting your credit utilization ratio and the average age of your accounts. Credit utilization, which is 30% of your FICO® Score, increases as the total available credit decreases. Consequently, closing an account without reducing existing balances may lead to a higher utilization ratio.
The length of credit history, comprising 15% of your score, can suffer if an older account is closed. Accounts with a long history positively affect this aspect.
When to Consider Closing
Despite potential negative effects, closing a credit card might be beneficial if the card has significant fees but provides minimal value. In some cases, managing fewer accounts could ease financial obligations.
“Every financial decision is a personal one,” says Experian writer Brianna McGurran.
It’s critical to weigh individual pros and cons, such as fees against benefits, when considering closing a card.
Strategies and Precautions
For those managing multiple cards, keeping unused accounts active can help maintain a strong credit score. This can be achieved through small, regular charges paid off monthly. Experts recommend maintaining a credit utilization rate below 30% for optimal credit health.
“Experts recommend keeping your credit utilization below 30% at all times, and the lower, the better,” says Brianna McGurran.
To reduce the risk of involuntary closure, occasional use or scheduled small payments can keep an account active. Ultimately, assessing the benefits of unused credit cards against personal financial goals will ensure smart, personalized decisions regarding account closures.
