Closing an Old Credit Card: Smart or Risky?

Deciding whether to close an old credit card can feel like a difficult decision. After all, credit cards affect your credit score, your spending habits, and sometimes even your sense of financial security.

But if you’re not actively using a particular card, you may wonder whether it’s worth keeping it, especially if you think there are better credit cards for you. Here, we’ll break down the pros and cons to help you decide whether to keep the card open or eventually say goodbye.

Consider how your credit score will be affected

Closing a card can have a bigger impact on your credit score than you expect. Factors such as credit utilization, payment history, and length of credit history affect your credit score. If you close an old card, you may be removing an established credit limit; This may affect the “length of credit history” part of your score.

Credit utilization (basically the percentage of available credit you use) also plays an important role. Closing a card reduces your total available credit, so your utilization rate may increase.

For example, if you have a $10,000 credit limit on two cards and you use $1,000, your utilization rate is as low as 10%. However, if you close one of these cards and your total credit limit drops to $5,000, you will use 20% of your available credit, which can lower your score. It may be a small difference, but if you’re planning a big purchase like a home or car soon, every point counts.

Consider the card’s annual fee and your benefits

One reason many people consider closing an old card is to avoid paying an annual fee, especially if they are no longer using the card’s perks or rewards. If your card has an annual fee but you’re not taking advantage of its benefits, it might be a good idea to close that card account.

But before you make any decisions, ask yourself if you’ll lose valuable benefits if you turn it off. Some cards offer excellent benefits that can cover the annual fee and even provide more value than you pay. For example, if your card includes travel credits, bonus points, or free services, you can still get good value from your card even if it’s been collecting dust for most of the year.

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Consider how it affects your spending habits

Keeping an old credit card open or closed can also affect your spending habits. For some, having an extra card can lead to the occasional “just because” purchase. If this sounds familiar, closing the card can actually be a smart way to minimize impulsive spending.

But if you’ve managed your finances well with multiple cards, keeping the card open can help you maintain your financial health by continuing to diversify your credit limits.

For people who mostly use debit cards or cash, carrying an extra credit card may seem pointless. But if you’re disciplined, keeping the card open can add to your credit mix without increasing your spending.

Planning to make big financial moves?

If you’re about to make a big financial move like buying a home, refinancing a loan, or financing a new car, your credit score will be examined. And since your score can take a hit when you turn off a card, you may want to hold off until the big moves are completed.

Lenders want to see a solid and stable credit history, so sudden changes to your credit profile may raise questions. By keeping the card open for now, you will ensure that your credit score remains as high as possible during the application process. You can re-evaluate after your big financial moves are completed.

Explore the option to downgrade or use a card occasionally

If you’re unsure about closing your card, one option is to switch to a card in the same product line without paying a fee, if the option is available. This allows you to keep your credit history intact without having to pay an annual fee. Additionally, regularly making small purchases on the card, such as a streaming subscription or a small monthly bill, can prevent the card from deactivating and help you maintain a long, positive credit history.

Keeping the card active with small, manageable transactions also shows the credit bureaus that you’re using credit responsibly. Make sure you pay every month to avoid interest charges.

The decision to close an old credit card is not black and white. For some, closing the card is the right choice to eliminate fees and avoid temptation. For some, keeping an old card open can significantly benefit their credit profile.

Finally, consider your current financial goals, upcoming potential big money moves, and personal spending habits. A little planning can help you decide what best supports your financial well-being.