Table of Contents
When managing your finances or trying to streamline your credit portfolio, you may consider closing an old credit card—especially one you haven’t used in years. But before you take that step, it’s important to ask: Should you close old credit cards? The impact on your credit score can be more significant than expected, as closing an account may reduce your available credit and shorten your credit history—both key components of your score.
Credit cards play an important role in shaping your credit profile, and older accounts can carry more weight than you realize. Before you call your card issuer to cancel an account, it’s crucial to understand the potential consequences and explore more innovative alternatives.
In this guide, we’ll explore:
- Why people consider closing old credit cards
- The actual effects on your credit score
- When closing makes sense—and when it doesn’t
- Steps to minimize credit damage
- How to use Apps like Beem to manage credit effectively
Why People Consider Closing Old Credit Cards
There are several valid reasons why you might want to close a credit card account:
1. Annual Fees
Many cards, especially premium travel or rewards cards, have hefty annual fees. Closing the account might seem logical if you no longer use the benefits that justify the fee.
2. Inactivity or Redundancy
People with multiple cards may feel they no longer need certain accounts. If a card hasn’t been used in months or years, it might feel unnecessary.
3. Fraud or Security Concerns
An open but rarely monitored account can be vulnerable to fraud. Some prefer to close dormant cards to eliminate risk.
4. Personal Financial Strategy
You could simplify your financial life, eliminate spending temptations, or minimize the number of accounts to track and maintain.
While these reasons are valid, each must be weighed against the potential impact on your credit score, which could affect your future ability to borrow affordably.
Read related blog: How Much Should I Pay for My Credit Card? Explore Solutions
How Closing a Credit Card Can Affect Your Credit Score
Closing a credit card can negatively impact your credit score, depending on how it affects key scoring factors used by models like FICO or VantageScore.
1. Credit Utilization Ratio
This refers to how much of your total available credit you use.
- Example: If you have $10,000 in total available credit and owe $3,000, your utilization is 30%.
- If you close a card with a $5,000 limit, your available credit drops to $5,000, making your utilization 60%.
Higher utilization ratios can lower your credit score, suggesting you rely heavily on credit.
2. Length of Credit History
The average age of your credit accounts affects about 15% of your FICO score. Older accounts add stability and maturity to your credit profile.
- Closing your oldest account won’t immediately impact your average age.
- However, your credit age could decrease once the closed account is removed from your report (typically after 7–10 years).
3. Credit Mix
Lenders like to see a healthy mix of credit types—installment loans (like auto loans or mortgages) and revolving credit (like credit cards).
Closing a credit card reduces your active revolving credit, potentially hurting your credit mix if you’re left with mostly installment accounts.
4. Total Number of Accounts
A lower number of open accounts can reduce your perceived financial stability. More open accounts indicate responsible credit management, especially with low or no balances.
When Closing a Credit Card Makes Sense
Despite the risks, there are scenarios where closing a credit card is justified and may be worth the slight drop in score.
1. High Annual Fees with No Value
If you’re no longer earning enough rewards to justify the fee, canceling might make sense. For example, if you stopped traveling and your travel card costs $250 annually, you might not get your money’s worth.
2. You Have Multiple Cards
If you maintain a healthy credit utilization ratio and have a well-diversified credit portfolio, the impact of closing one card could be minimal.
3. Security Concerns or Fraud Risk
A card rarely monitored or used may pose a risk if compromised. Closing it may offer peace of mind.
4. You’re Aggressively Paying Off Debt
In rare cases, simplifying your credit life—especially if you’re using debt snowball or avalanche methods—might warrant closing unused accounts after thoughtful analysis.
Read related blog: How Often Does Your Credit Score Update?
When You Should Keep an Old Credit Card Open
In most situations, keeping an old account open is better, especially if it has no annual fee.
1. It’s Your Oldest Credit Line
The older the account, the better it is for your average credit age. This helps improve your credit score over time.
2. No Annual Fee
If the card costs nothing to keep, it’s often worth keeping it open—even if you don’t use it regularly.
3. Helps Your Credit Utilization Ratio
Even if you rarely use the card, its credit limit boosts your available credit, keeping your utilization ratio low.
4. Occasional Use Keeps It Active
Using the card for small purchases (like a streaming subscription or monthly bill) helps keep it active and in good standing without adding debt.
Alternatives to Closing a Credit Card
Before canceling, consider these strategies to minimize credit score impact while achieving your goals.
1. Product Downgrade
Call your card issuer and request to switch to a no-fee version of the card. This allows you to keep your credit history without paying unnecessary fees.
2. Card Lock or Freeze
Most banks allow you to lock your card via their app or website. This prevents new purchases while keeping the account open and active.
3. Use for Small Recurring Payments
Keep the account active by using it for a minor monthly expense and paying it off automatically.
4. Adjust Reward Categories
If you stopped using a card because it no longer fits your spending habits, ask if the issuer offers another product that better suits your needs.
Read related blog: How to Get a Credit Card With No Credit History: Experts Guide
How to Close a Credit Card Without Hurting Your Score
If you’re set on closing the card, take these steps to minimize the damage to your credit score.
1. Pay Off the Full Balance
Ensure the account is fully paid, including any pending charges or interest, before closing it.
2. Redeem Any Rewards
Use or transfer points, miles, or cash back before the account is shut down.
3. Switch Auto-Payments
Move any recurring bills or subscriptions to another card to avoid service disruptions.
4. Request Confirmation in Writing
Ask the issuer for written proof that the account was closed at your request and with a zero balance.
5. Monitor Your Credit Report
Check your report in the following months to ensure the account was reported as “closed by consumer” and not “closed by lender.”
How Beem Helps You Manage Old Credit Accounts
Beem offers comprehensive tools to help you make smarter credit decisions.
Real-Time Credit Monitoring
Beem helps you track your credit score and alerts you to any changes—like credit age fluctuations or utilization increases—caused by closing an account.
Inactivity Alerts
The app notifies you if any of your credit cards have been inactive for too long, helping you avoid issuers’ automatic closures.
Customized Credit Recommendations
Based on your profile, Beem can advise whether to close a card, keep it open, or request a downgrade.
Debt Payoff and Utilization Planning
Plan how closing a card will affect your credit utilization ratio, and use Beem’s tools to maintain a healthy score while managing debt.
Frequently Asked Questions (FAQs) About Impact On Credit Cards
Does closing a credit card hurt my credit score?
It can, mainly if it affects your credit utilization ratio or average credit age. The exact impact depends on your credit profile.
How long does a closed credit card stay on my report?
Closed accounts in good standing generally remain on your credit report for 7–10 years, helping your score.
Can I reopen a closed credit card?
Possibly. Some issuers allow you to reopen recently closed accounts if you closed them in good standing. Policies vary by lender.
Is it better to leave a credit card open with a zero balance?
Yes. Keeping it open (especially with no annual fee) contributes to your available credit and strengthens your credit history.
What happens if I stop using a credit card but don’t close it?
Inactivity may lead to the issuer closing the account automatically, which could impact your credit. Using it occasionally is a good strategy.
Conclusion
Closing an old credit card may seem like a smart financial move, but it’s often more complicated than it appears. Your credit utilization, credit age, and overall score can all be affected—sometimes in ways that aren’t immediately visible.
If the card has no annual fee and doesn’t pose a risk, keeping it open is often the better choice for your credit health. On the other hand, if the card is no longer serving you, has high fees, or poses a security risk, it may make sense to close it—strategically and carefully.
Apps like Beem can help you navigate the complexities of credit management. By offering real-time insights, personalized tips, and score tracking, the platform empowers you to make smarter, more informed decisions about keeping or closing that old account. Download the app now.
