Should I close old credit card accounts?

If you find that you have a credit card you haven’t used in a long time and don’t plan on using in the future, you may have considered closing the old account. Generally, you should not close your account unless the card comes with an annual fee.

Two factors that affect your credit score are your length of credit history and credit utilization ratio. Your length of credit history is how long you have been using credit cards and is influenced by the age of your oldest account, the age of your newest account and the average age of all your accounts. Therefore, it is better to keep your credit cards open, especially if they are older, as older accounts show lenders that you have an established history of responsible financial management and have a positive impact on your credit score. Closing an account with a long history is usually not a good option.

Your credit utilization ratio is the portion of your available credit you are using and takes into account your overall debt-to-credit ratio across all accounts and your credit card balances as compared to their limits. It is recommended that you keep this ratio below 30%, but the lower the better. As a result, unused credit cards will lower your credit utilization ratio and boost your credit score since you are not spending money on it.

If you keep your credit card open and know for sure you will not be using it ever again, it is a good idea to dispose of the card so nobody else can get their hands on it. There are various ways to do this, and you should make sure to pick a method so that your information is not recoverable for identity thieves. You can use a pair of scissors to cut up your card into small pieces if it is plastic, and if it is metal you can use metal shears or send the card back. For more information, check out this article.

How to close your credit card without hurting your credit score

However, if you feel strongly about closing your old credit card, there are circumstances where closing an unused credit card won’t hurt your credit score and may even help it. If the credit card is one you got recently, closing it will likely not have a huge impact on your length of credit history. If the card has a low credit limit or you don’t have much debt, closing your credit card also won’t have much of an impact on your credit utilization ratio either. Even if closing it brings up your credit utilization ratio, the number will eventually go back down if you keep paying off your debt.

Here are the steps you should take when closing your account:

1. Check your rewards balance and redeem any remaining rewards on your card.
2. Pay off any remaining balance ― you can do this by paying off your credit card in full or finding a balance transfer card and transferring the balance.
3. Call your bank at the customer service number on the back of your card and confirm that the balance on your credit card is zero. Once you have confirmed that the balance is zero, tell the representative you’d like to cancel your card. Hole firm if you are met with resistance. 
4. Ask for a name and address you can write to, and make sure to write down the call details, including the date, time and way to identify the representative you spoke to.
5. For added insurance, write a cancellation letter to the card issuer requesting written confirmation of the account’s closure. Make sure to include your name, address, phone number, account number and details from your phone call. You should also include the check number that you used to pay off your account balance and make a copy of the letter for your records. You should send the letter via certified mail or with a return receipt requested to prove the company received your letter.
6. Check your credit report to confirm the cancellation; it may take at least a month for the card to be officially canceled. If the account is still marked as open, repeat the process, and if that doesn’t work, you can file a dispute through one of the three credit bureaus (Equifax, Experian or TransUnion). If that doesn’t work, you can file a dispute with the Consumer Financial Protection Bureau.
7. Dispose of your card properly, following the tips mentioned earlier.

However, if you have multiple credit cards under the same issuer, they may allow you to transfer your credit card balance from a closed card to your remaining card(s). If you close the newest card of the bunch, you will actually increase the average age of your accounts and potentially bump up your credit score. It is important to note that you should keep your oldest account open; the only reason to close an old account that is in good standing is because of the annual fee.

In that case, you should try negotiating with your issuer to waive the annual fee or see if they can downgrade the card. If you are forced to close the old account, your credit score will drop, but as the age of your account increases and you pay your bills on time, it will go back up.

Conclusion

Generally, you should avoid closing old credit card accounts unless you want to avoid paying the annual fee. In that case, you can try negotiating with your credit card issuer to waive it or see if you can downgrade your card to one with a lower annual fee. If your credit card is newer, has a low credit limit or you don’t have much debt, closing your credit card should not negatively affect your credit score that much. If done strategically, you can close your credit card while either keeping your credit score the same or even increasing it. Either way, if you aren’t going to use a credit card ever again, you should make sure to properly dispose of the card to protect against identity theft.