Keeping unused credit cards without high fees may be beneficial. Doing so improves your credit score. This happens because it helps maintain a lower credit utilization ratio and prolongs your credit history.

On the other hand, closing these old credit cards could be a wiser choice. This is particularly true if they carry substantial annual fees or if you're aiming to streamline your financial management. Keeping or closing old credit cards should be a decision based on your financial circumstances.

Does Closing a Credit Card Affect Your Credit Score?

When considering canceling a credit card, especially your oldest one, it's essential to understand its impact on your credit score. Jason Decker, a travel rewards expert, strongly advises against closing your oldest by canceling a credit card, as It can shorten your credit history. A long credit history boosts your credit score by 15%.

Closing a credit card shortens your credit history even though it stays on your report for ten years. At Freedom Financial Network, Freddie Huynh notes that past payments on these accounts don't disappear after completion. The account should drop off your report after you build a new, long credit history.

Second, closing credit cards raises credit utilization. The ratio of your debt to your credit limits accounts for 30% of your credit score. If you have $5,000 in card debt and a $20,000 limit, your utilization ratio is 25%. canceling a credit card of $3000 reduces your available credit to $17,000 and increases your utilization ratio to 29%. A higher ratio can hurt your credit score.

When Should You Keep Your Old Credit Card?

Consider these points if you're considering shutting down your oldest credit card. Reflecting on them might lead you to decide against closing the card.

• Firstly, if your card doesn't charge an annual fee and you're not actively using it, it's better to leave it open. Although it might not offer any rewards, having your oldest credit card active can boost your credit score. This is because it extends the average age of your accounts, an essential factor in your credit history.
• Next, if your credit score is hovering just below the excellent credit range, it's advisable to maintain your current credit accounts. Avoid accumulating more debt or shrinking your credit availability. Stick to regular, complete payments; you might soon see your credit score rise into the 'good' category.
• Also, consider your credit card balances. If you have high balances on other cards, closing your oldest card might not be wise. A maxed-out credit situation can harm your score. Keeping an older card with no balance increases your available credit, which can help reduce your overall credit utilization.
• Lastly, if you anticipate a hard inquiry on your credit report soon – like when applying for a loan, a new apartment, or a job – it's wise to keep your old card, especially if its balance is low or zero. A higher credit score can make you a lower-risk candidate to potential lenders.

How To Close A Credit Card

Although the specific steps to close an account may vary from one credit card company to another, they all essentially follow the same format:

Settling Your Credit Card Balance Before Closure

Before closing credit cards, pay off any balance. A credit card with a balance can be canceled, but the debt and interest must be paid. Therefore, settling your credit card debt is a necessary step before closure. This action simplifies ending your association with the credit card issuer and ensures no pending financial obligations that might complicate matters later.

Redeeming Rewards Before Card Cancellation

One significant benefit of credit cards is their rewards, like cashback or purchase discounts. However, it's important to remember that once you cancel a credit card, the opportunity to utilize these rewards vanishes. Hence, you should use all accumulated rewards before canceling a credit card. This step ensures you don't miss out on any benefits you've earned through card usage.

Initiating the Credit Card Closure Process

Many issuers offer an easy way to cancel a credit card through online platforms, mobile apps, phone calls, or in-person visits. Choose the most convenient method. Your card issuer's customer support can help if you have any issues. This flexibility in the cancellation process makes it easier for cardholders to close their accounts conveniently.

Securing Confirmation of Account Closure

After you've initiated the request to close your credit card, it's a prudent measure to send a certified letter to the issuer. This letter should explicitly request confirmation of your account's closure. While this might seem like an extra step, it serves as a precautionary measure to ensure the completion of your account cancellation, especially if the standard cancellation procedure encounters any hitches.

Verifying Credit Report for Account Status

Check your credit reports after cancellation to ensure the account is closed. This verification may take two months. You can request a free cancel a credit card report from the credit bureaus to verify your account's closure. Maintaining an accurate credit history requires this step.

Disposing of Your Credit Card

Destroy the credit card after the issuer or credit report confirms your account closure. Use a shredder or scissors. Proper card disposal is essential to prevent any potential misuse or fraud. This final step marks the end of your journey with that particular credit card.

Close an Unused Credit Card Without Impacting Score

Sometimes, canceling a credit card doesn't hurt your score. Imagine having two cards from the same provider. The other has a $5,000 limit and an annual fee, while the first has no yearly fee.

Cancelling a credit card later to save money is possible. Request your issuer to transfer the $5,000 limit to your fee-free card before closing the fee-based one. This move consolidates your limits, giving you one card with an $8,000 limit.

When you transfer your credit limit to an existing card, you maintain your total credit availability. This strategy keeps your credit utilization rate unchanged. Remember, if the card you're closing is not one of your oldest, it's less likely to harm your credit score.

If avoiding the annual fee is your main reason for closing credit cards, consider other solutions. Negotiating with your issuer to remove or reduce the annual payment is a viable option. If you've been with them for a while, they might be inclined to keep you as a customer by offering fee waivers or reductions.

Another approach is downgrading your card. Many high-fee cards have counterparts with lower fees and similar benefits. You can switch your expensive card to a more budget-friendly version without losing many perks.