How to Decide Whether It's Time to Close a Credit Card

While it's generally best to keep credit cards open even if you're not using them, there are situations where closing a credit card makes sense.

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As a general rule, it's best to keep your credit cards open even if you're not using the accounts anymore. Closing a credit card, even for a good reason, has the potential to impact your FICO® Scores in a negative way.

Yet there also are times when canceling a credit card might make sense from a financial perspective. Here's how you can decide whether it's time to get rid of a credit card account along with some tips that might help you during that process.

Should You Close an Unused Credit Card?

As you build your credit and improve your FICO® Scores, you may qualify for credit cards with better benefits over time. Therefore, you might find that you use a newer rewards credit card more often and stop using an older credit card account that doesn't offer you those same cash back, points, or miles on your purchases.

There's nothing wrong with outgrowing a credit card account. Yet you might want to consider keeping that older card open anyway as a backup card or for the sake of your FICO® Scores. It can also be a good idea to use the account every once in a while to avoid having your card issuer close the account due to inactivity.

The closure of an old, unused credit card—especially one with a zero balance—could wipe out some of your available credit and trigger an increase in your overall credit utilization ratio. And if your credit utilization ratio climbs, your FICO® Score might dip in response.

It's also worth mentioning a related credit myth on this subject—the incorrect idea that canceling a credit card will immediately exclude that card's length of credit history (worth 15% of your FICO® Scores) from being considered in the score calculation. In truth, FICO Scores generally consider the age of both open and closed accounts. As long as an account remains on your credit report, it may factor into your length of credit history calculations for your FICO Scores.

However, the credit bureaus often remove closed, positive accounts from credit reports after around 10 years. If the account is negative, it can remain on your credit report for up to seven years. Whenever a closed credit card comes off your credit report, it will no longer have the potential to help you within the length of credit history scoring category.

3 Reasons It Might Be Time to Close a Credit Card

Of course, there are some legitimate reasons you might want to consider closing a credit card account. Here are a few examples.

1. You need to close a joint account during a separation or divorce. If you share an account with an ex (where one of you is not merely an authorized user on the other person's credit card), closing joint credit cards may be one of the steps you need to take to protect your credit during divorce or separation. If you are in this situation, you should interact with the card issuer as they may be able to assign you a new credit card account with the same “date open” as reported on the card you wish to close.

2. The credit card issuer is charging you a high annual fee. In some cases, you might be able to talk to your credit card company about waiving an annual fee. You might also be able to downgrade your credit card if you're not getting enough value from an account to justify paying an annual fee. But if you're unsuccessful and don't wish to continue paying for that expense, it might be time to think about strategically canceling your account.

3. Overspending is a problem. Some people can avoid the temptation to overspend on a credit card by removing a credit card from their wallet and locking the card in a safe place. However, you know yourself best. If you believe that closing a credit card is the only way to avoid more credit card debt problems in the future, then it's probably best to trust your gut instinct.

Steps to Take When Closing a Credit Card

If you decide to cancel a credit card, try to make sure your credit utilization ratio is as low as possible on all your other accounts before doing so. And if you can make sure those balances remain low or at zero until after the statement closing date on your credit card accounts, even better.

The balance on your statement closing date is the balance that your credit card issuer typically reports to the credit bureaus each month. So, if you want a low credit card balance to appear on your credit reports, it's important to have a low balance on your account at the time your statement closes.

Also keep in mind that many credit card issuers require you to redeem points, miles, or cash back before you close your account. Otherwise, you could forfeit any unredeemed rewards remaining on your account.

Bottom Line

You probably shouldn't close a credit card account unless you have a good reason to do so. Canceling a credit card won't improve your FICO® Scores. But if you need to say goodbye to a credit card for another legitimate reason, take the time to reduce your other credit card balances first if possible to avoid triggering a jump in your overall credit utilization rate.

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Michelle Black

Michelle Black, Founder of CreditWriter.com is a leading credit expert, financial writer, and speaker with nearly two decades of experience. Her work has been featured with major outlets such as Forbes, Reader's Digest, and U.S. News and World Report.