I Closed a Credit Card Last Year, and It Was One of the Smartest Money Moves I've Made

by Maurie Backman | Published on Sept. 29, 2021

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An older woman contemplates using her credit card to make an online purchase.

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Sometimes it pays to get rid of a credit card that isn't useful to you.

As someone who's pretty credit savvy (I mean, I write about this stuff for a living), I'm well aware that canceling a credit card can have negative repercussions. When you close a credit card you've had open for many years, it can impact the length of your credit history, which is a big factor that goes into calculating your credit score.

Closing a credit card can also drag down your score by raising your credit utilization ratio. That ratio measures the amount of available revolving credit you're using at once, and the higher it is, the more it can hurt your score. If you have three credit cards, each with a $5,000 credit limit, and you close one of those accounts, your total limit will shrink to $10,000, potentially causing your credit utilization ratio to rise.

It's for these reasons that I'm generally pretty careful about closing credit cards I don't use often. But last year, I opted to close a credit card, and it was actually a really wise financial decision.

When it pays to close a credit card

One general rule I like to follow when it comes to credit cards is to never pay an annual fee that doesn't pay for itself. Sometimes, in exchange for a modest fee, you'll get extra perks from a credit card that make up for that fee. But if you're not benefiting from a given card, then paying a fee for it makes no sense.

Such was the case for the travel rewards card I opted to close. When I first signed up for it, I was doing a fair amount of air travel and was enjoying a number of perks, such as extra air miles and free checked bags, in exchange for the $95 annual fee that came with the card. But ever since the pandemic began, I've yet to board a plane. And in the absence of taking flights, keeping that credit card open and paying its fee made no sense.

The other reason I opted to close my travel rewards card was that it was a fairly new account. And so I knew that closing it wouldn't impact the length of my credit history too badly.

Plus, because I don't have any outstanding credit card balances, and my existing credit cards come with generous spending limits, I don't have to worry about my credit utilization ratio creeping up into unfavorable territory. So while closing my travel rewards card did reduce my total credit limit, it wasn't really a concern.

I also know that my income has increased since I last updated some of my credit card companies. Because of that, I'm likely to be approved for a higher spending limit should I decide to request one.

Don't pay needless fees

Sometimes, it makes sense to pay an annual fee for a credit card. But in my situation, I wasn't reaping enough benefits to make that fee worth paying. And since I wasn't looking at notable credit score damage by closing my account, canceling that travel card was a smart move.

If you have multiple credit cards open, it pays to take a close look at those that charge an annual fee and make sure you're really getting your money's worth. The last thing you should do is throw away money on an annual fee that doesn't make up for itself.

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