Pros and Cons of Closing an Old Credit Card

Watch out for these consequences to closing down an old credit card.

Credit cards aren't necessarily meant to be used forever. There are plenty of circumstances where you'll use a card for a while, but your needs will change and you'll decide you'd rather switch to a different one.

If that's the case, you'll have a choice to make: Do you want to close down the old card or keep it open? There are pros and cons to each option that should be carefully considered before you decide which approach is best for you.

Pros of closing an old credit card

Here are some of the biggest advantages of closing down a card you aren't using any more.

• You won't have to worry about paying an annual fee: If you're paying an annual fee for a card you don't use, that's just a waste of money. Getting that cash back in your pocket by canceling the card is one of the most persuasive reasons to close an account down.
• You can get your deposit back if you had a secured card: Many people start with secured credit cards because they're easy to get approved for -- but they require you to make a deposit. If you've graduated to an unsecured card, you may want to cancel the secured one so you can get your money back.
• You won't be tempted to use the card and end up in debt: For some people, having a lot of available credit is a temptation. If you're one of them, keeping an old card open could become a problem if you find yourself wanting to make a big purchase and using the card to do it. Closing the account makes it harder to get into debt, which could be a smart move if you aren't sure you'll make the financially responsible choice.
• You won't have another card to keep track of: When you leave a credit card account open, you'll have to remember to manage it. This may not seem like a big deal since theoretically you could just leave it in your wallet. But if you don't use it for a while, card issuers will eventually end up closing it. That means you need to charge something on it periodically and pay off the bill once you've done so.

Cons of closing an old credit card

And here are some of the biggest disadvantages of shutting down your old card once you're no longer using it any more.

• You could reduce the average age of your credit history: The average age of your account history affects your credit score. Closing down old accounts could reduce it, thus hurting that score. The possible impact of canceling a card on your credit record is one of the biggest reasons you may not want to close old accounts down.
• You could hurt your credit utilization ratio: You could also damage your credit in another way by canceling an old credit account. Credit utilization ratio -- the amount of credit used relative to credit available -- is another major factor that determines your score. If you close an account with ample credit available, you'll have a higher utilization ratio going forward. This could do substantial damage to your credit score.
• You won't have the credit available when you need it: It's not a good idea to charge purchases on credit cards that you can't afford. But situations could arise when you need to borrow, such as to handle a short-term emergency expense that you could repay by payday. If you've closed your old credit card account, the credit won't be available when you need it. Although you can apply for a new card, that will take more time than just using your existing one.
• You'll miss out on cardholder perks the card could've provided: It's common for credit cards to provide perks to cardholders, such as airline lounge access or purchase protection. If you close down an account, you won't get to reap those benefits any more. While you may not mind if you aren't using them now, you could regret that if your circumstances change.

What's the best choice for you?

Ultimately, you'll have to consider the specifics of your situation when deciding whether it makes sense to cancel a credit card or keep your old cards open. If the card doesn't cost you money and you're confident it's not going to tempt you to get in over your head and into financial trouble, there's little harm and potentially significant benefit in keeping it open -- even if that does mean you need to make an occasional purchase on it once in a while.