It's not unusual to acquire your share of credit cards over time. But what happens when you realize you've been hanging onto a card you never use? Your first inclination may be to cancel it and free up that valuable slot in your wallet. But before you make that call, ask yourself these three questions first.
Is This Card Costing Me Anything?
Some credit cards charge an annual fee for the privilege of having them. Typically, cards with an annual fee offer special features, like a generous rewards program, to make that fee worthwhile. But if you’re not using that card and therefore aren't benefiting from its perks, then there's no sense in paying a fee needlessly. On the other hand, if that credit card isn't costing you anything, keeping it around buys you the option to use it in a pinch if needed. And if you store it in a safe place and use it sparingly, it shouldn't really be a liability.
2. How Long Have I Held This Card?
The length of your credit history plays a role in determining your credit score, which is why it's beneficial to have long-standing accounts in your name. If the credit card you're thinking of canceling is one you've had for many years, and your other cards are much newer, then getting rid of that unused card could actually hurt your score. Therefore, if you’re not paying a fee for it, you may be better off keeping it.
3. Does This Card Come With a Generous Credit Limit?
Another major factor that goes into calculating your credit score is utilization, or the amount of available credit you're using at once. The lower your utilization, the more your score benefits, and as a general rule, you’re best off keeping your utilization to 30% or below. This means that if your total credit limit is $5,000, you should never have more than $1,500 in outstanding charges at once.
How does that tie into keeping an unused credit card? It’s simple: If the card in question has a high credit limit, hanging onto it could contribute to a lower utilization ratio, thereby keeping your credit score in favorable territory. Before you cancel that card, figure out what your credit limit will look like without it, and if it's too low, keep that card around.
Canceling a credit card you don't use or need might make sense initially, especially since the more cards you have, the greater your chances of losing one or having it stolen. But if the card you're thinking of unloading is a no-fee card with a generous credit limit, and you've had it for years, then holding on to it could help your credit score, thereby making it easier and more affordable for you to borrow money the next time you need to. It especially makes sense not to cancel that card if you're the type of person who uses credit cards responsibly, and you don't have to worry about charging up a storm just because the option exists.