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If you have an old credit card account that you no longer use, you should consider whether you want to keep or cancel it. An unused credit card with an annual fee should be canceled in most cases. But cards with no annual fee likely won't negatively impact your finances, so they're fine to keep around—if your bank doesn’t cancel them due to prolonged inactivity. In this article, we’ll show you what to do with inactive credit card accounts and discuss alternatives to closing them. Additionally, we’ll discuss why closing credit card accounts can be bad for your credit score.
- What to Do With Your Old Credit Card
- When Should You Cancel Your Credit Card?
- How Closing Your Credit Card Account May Affect Your Credit Score
What to Do With Your Old Credit Card
If you have a credit card you don’t use, you have two options: keep the card open and don’t use it, or close the card. It’s important to understand the positives and negatives of each option before making a decision that can affect your credit or finances in different ways.
If you’re concerned about keeping active credit cards around your home or office, you can cut them up. First record the credit card number, expiration date and security code, and keep these details in a safe place. This can come in handy for making online purchases or calling customer service. Call the card issuer and request a new card if you decide you’d like to start using the credit card for in-store purchases again.
Some credit card issuers may close your account automatically after long periods of inactivity. Generally, this happens if you haven’t used the card in one to two years. This time frame varies by card issuer, so check with your bank. To avoid having your account closed, make a small purchase on each of your credit cards every two months to keep your accounts active. If you cut up your card, use the recorded credentials to make regular, small online purchases.
Some good news: Cards that aren’t actively used and have a zero dollar balance will not hurt your credit score. In fact, they can help raise your score as these accounts add to your credit history and lower your overall credit utilization, which are two important parts of your credit score.
What to Do About Old and Inactive Credit Cards With an Annual Fee
If you have a credit card that you're not using and it has an annual fee, your best option is likely to cancel it. Before you do, call your credit card issuer using the number on the back of your card. Explain to the customer service representative that you want to close your credit card because of the annual fee. In many cases, the representative will offer to waive the annual fee, convert your credit card account to a fee-free credit card, or even offer you bonus reward points in exchange for paying the fee. Your outcome may vary, but it’s always worth asking.
When Should You Cancel Your Credit Card?
Generally, you should only close a credit card account in two situations: You no longer use the card and it has an annual fee, or you can’t keep yourself from reckless spending. In either of these situations, you can close your account by calling the number on the back of your credit card. The customer service representative will verify your identity and walk you through the process of closing the account.
Secured credit card holders may want to close their secured credit card accounts in order to get their credit line deposit back. If the card has been paid on time for several months, the secured credit card issuer may offer to convert the secured card to a standard, unsecured card and return the deposit. However, if you decide to close a secured account, the issuer will refund deposit (by check or direct deposit) you provided when approved for the secured card.
When you cancel a card, you can no longer make charges to it. Make a list of all your automatic recurring charges, like online subscriptions and bills, and move them to another card before canceling. Additionally, notify all authorized users as their cards will be closed, too.
If you close a credit card that still has a balance, you’re still expected to pay it like you would any other credit card balance. You can transfer the balance of the closed account to another credit card account. However, credit card issuers generally charge a balance transfer fee of 1% to 3% of the balance transferred.
How Closing Your Credit Card Account May Affect Your Credit Score
Closing a credit card account may negatively affect your credit score. That is why you should only get rid of old credit card accounts if they are having a detrimental effect to your finances.
Closing your account will impact your overall credit utilization. This refers to the amount of the total available credit you use at any given time. Closing an old account will immediately shrink this available credit. This makes your debt-to-available-credit ratio higher, which can seriously affect your credit score if your other credit cards have high balances. Credit utilization makes up 30% of your FICO credit score.
One common misconception is that closing your old accounts will only have a negative impact on your credit score. Closed credit card accounts will remain on your credit report for 10 years before they’re removed. This means that accounts closed while in good standing will positively affect your credit score for years to come. By that time, the effects of losing your account history will likely be minimal.