Is It Better to Cancel Your Unused Credit Card or Keep It Open?

It's worth checking out the best credit cards because they offer a lot of benefits for consumers. They're one of the safest ways to pay for purchases since they're not directly connected to your bank account the way a debit card is. They let you earn cash back and other rewards on your spending. Some even come with perks like airport lounge access, streaming service credits, and more.

But you might have a credit card in your wallet or sock drawer you're not using at all. Is it a good idea to keep this card around -- or should you close the account? Let's discuss this from both sides and learn why (or why not) to keep an unused credit card.

Keep the credit card open

First, let's take on the reasons to keep your credit card account open even if you're not using the card.

Improving your credit utilization ratio

What's the credit limit on that unused credit card? Depending on that number and how many other cards you have (and their credit limits), the unused card could be boosting your credit score.

In the case of revolving debt (where the amount you owe changes from month to month), your credit score is impacted by your credit utilization ratio. This is the amount of credit you're using relative to how much you have, and it accounts for a whopping 30% of your FICO® Score -- the second-most important factor, after payment history. To avoid credit score damage, it's best to keep this number under 30%.

Let's say you have three credit cards -- one with a limit of $9,000, one with a limit of $7,000, and one with a limit of $4,000. That gives you a total credit limit of $20,000. You have a balance of $2,500 on your $9,000 card, a balance of $2,500 on your $7,000 card, and a $0 balance on the $4,000 card, which you're thinking about closing.

Right now, you have a credit utilization ratio of 25%, since you're using $5,000 of your $20,000 total available credit. But if you close that $4,000 card, that number goes up to 31%. In this instance, it's a good idea to keep that unused card open until you pay down those balances.

Extending your credit history

Depending on how old that unused credit card account is, it could be improving your credit score in another way. Length of credit history is also part of your credit score -- it makes up 15% of your FICO® Score.

It makes sense that this would be important to creditors -- they want to see that you can manage credit successfully over a long period. In the case of a credit card, having a long-standing account that you use and pay off every month is a good way to boost your credit score.

If that unused credit card has been in your life for 15 years and you've moved on to cards with higher credit limits or better benefits, it's still contributing to your overall credit history. Closing it could make a noticeable impact on your credit score.

Close the credit card

And now for the opposite case -- when you should close the account.

Paying an annual fee

This is the reason I closed my oldest credit card account not too long ago. I was paying an annual fee for the card, which didn't offer benefits worth that fee.

If you're paying an annual fee for a card that doesn't fit your spending or just doesn't offer benefits or rewards you can use, close it. You can also ask the card issuer if it's willing to waive the annual fee, but don't assume it will say yes -- especially if you're not using the card at all.

Temptation to spend

Sure, you might not be using that credit card now -- but maybe you're feeling tempted to use that credit limit. Credit cards can be dangerous because they make it really easy to spend money you don't have. And then they charge high interest rates on your balance, which can make it grow fast over time -- the longer you carry a balance, the more you'll pay.

As of May 2024, the average interest rate on credit card accounts that are charged interest (as opposed to those with a 0% intro APR) was 22.76%. Ouch. So if that unused credit card is weighing on your mind, teasing you with its available credit, cancel it. You'll eliminate a potential source of financial pain.

Ready to start paying down balances and save money? Check out our list of the best balance transfer credit cards to find the right fit for you.

Closing an unused credit card isn't always a slam dunk for your finances -- but neither is keeping one open. The choice is yours, so weigh your options and decide which is best for your peace of mind and wallet.