Should I Cancel an Inactive Credit Card? 

Do one thing: Before you close a credit card account, take a moment to consider the impact it will have on these credit score factors: credit age, credit utilization, and credit mix. 

When you are working to build or maintain a healthy credit score, it can be easy to want to streamline what you see on your credit reports and the number of statements you receive online or in the mail every month. Unfortunately, when it comes to getting rid of old accounts – especially ones you may have had for a long time – there are often more reasons to hang on to those credit lines than to close them. 

Here are some reasons to think about canceling an inactive credit card account and also why you should consider keeping it active and open for as long as possible. 

Why You Might Consider Canceling an Inactive Card 

Closing an account could mean you will have one less thing to worry about, and could even save some money if you pay an annual fee for that card. Plus, if you can’t resist racking up new charges on a card with a zero balance, removing that temptation could be helpful.

Why You Shouldn’t Cancel Credit Cards

Depending on how you cancel a card, your credit score can take a hit, which will make it harder to obtain credit in the future for a home loan or another big-ticket item.  

Here’s what can happen when you close an inactive card.

• It may lower your total available credit. This might seem obvious, but closing an account takes away some of your total available credit. And that can have the unintended consequences of lowering your credit score. How does that work? The two main credit scoring agencies – VantageScore and FICO – take into consideration several factors when developing credit scores. One of those factors is how much available credit you have across all credit lines. So when one of those accounts is removed from the group you lower your available credit which can then, change your credit utilization rate.

• Change your credit utilization rate. Closing a card lowers your total available credit, which can raise your utilization rate, depending on the balances you carry on other cards. You want to stay at 30% utilization or below.

• It can change your credit history. Lenders like to see a long history of making on-time payments. Closing a card removes part of your history, which can ding your score. 

• It can impact your account mix. Credit card issuers and lenders also want to see that you can handle a variety of accounts such as installment loans like a mortgage or a car loan and also revolving credit (credit cards) at the same time. 

What to Do Instead of Closing an Account

Instead of canceling a card, you can keep the account active by using it to make one or two small purchases a month.

If keeping the card in your wallet is too much temptation:

• Cut up the card.
• If you don’t cut up your card, store it in a safe place where you won’t be tempted to use it.
• Leave the account open to make sure your credit score isn’t hurt by a cancellation.

When a Lender Wants to Close an Inactive Account

Sometimes, if your card has been inactive for six months or more, a credit card issuer may send you a letter telling you they want to close your account if it remains inactive. You have a few options here: 

1. Make a small purchase. You can take the advice mentioned above and begin using the card again for a few small purchases a month. Or, you can set the card up to pay a recurring account balance.

2. Pay a monthly bill. If you do this, of course, you will then need to make sure you continue to pay off the balance on time every month so you won’t accrue any late fees or interest. Since not every lender will allow you to pay a bill on a credit card, choose a utility or a streaming service that charges a consistent amount to keep your credit card account active.  

The Bottom Line

While canceling an inactive card might seem like a good idea, you should consider the added benefits of keeping the account open and using it to make a few small purchases or pay another monthly bill. Your credit score will thank you! 

With reporting by Casandra Andrews