Is Now a Good Time to Close Your Unused Credit Cards?

When you have unused credit cards clogging up your wallet, it's natural to want to get rid of them. It'd free up space and give you one less account to keep track of.

It's even more tempting because the process for closing a credit account is so simple: just call the issuer and ask. But deciding whether it's worth closing the card is a bit more complicated. Here's what you need to know.

Should you close the credit card at all?

It's generally not recommended to close a credit card because doing so could raise your credit utilization ratio. This is the ratio between the amount of credit you have available to you and the amount you use each month. For example, if you have a $1,000 balance on a card with a $10,000 limit, your credit utilization ratio is 10%.

This ratio forms an important part of your credit score, and ideally, you want to keep it under 30% to keep your score high. But this can get harder when you close an old credit card because you lose access to a big chunk of your available credit. Closing your card could also reduce your average account age, which also hurts your credit score.

That's why it's often best to leave a credit card open even if you're no longer using it. If you don't like having it in your wallet, take it out and keep it somewhere safe in your home.

Typically, the only reason to close an unused credit card is if it charges a high fee. You see this with some travel rewards cards. If you're not earning enough rewards to recoup the annual fee, it's not worth keeping, even if your credit score will take a slight hit by closing it.

What if you want to close the card anyway?

If your credit card has a high fee or you just want to close it regardless, all you need to do is contact the issuer and request that it close your account. You will still have to pay off any remaining balance on that card.

Those planning to close multiple cards probably want to space them out over time. Consider closing one card every six months or so. This will give you time to adjust to having one fewer credit account in your name, and it will help reduce the hit your credit score takes from the closure.

After closing the card, reevaluate your spending across all your cards and try to keep your credit utilization ratio under 30% if you can. You could do this by using cash or a debit card instead of a credit card for some purchases. Or you could pay your bill off twice monthly. Credit card companies only report your payments to the credit bureaus once per billing cycle, so paying twice makes it appear as though you spent less than you actually did.

Finally, you can try to raise your credit limit on your remaining cards. But it's best to do this only if you feel pretty confident you'll be approved. Every time you apply for a credit limit increase, the issuer does a hard inquiry on your report. This drops your score by a few points, but if you're approved, the reduction to your credit utilization ratio will more than offset this.

Be careful not to apply for a new card or a credit limit increase too often. This sets off red flags with lenders who might think you've experienced a major financial downturn. Limit yourself to about every six months with this as well.

By taking these precautions, you can hopefully maintain a high credit score while only retaining the credit cards you want and use. If you're not sure if closing a card is the right move, go ahead and keep the account open for a while. It probably won't hurt, and it could even help you.