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You may think it would be a good idea to just cancel any credit cards you don’t use. If those cards don’t tempt you to overspend, it’s actually better to just keep them. And if they charge an annual fee, you have the opportunity to save some money. Here’s what to do with an unused credit card.
Downgrade – or just carry on as before
You have two options for dealing with a credit card you no longer use but don’t want to cancel. If it’s a higher-value card, it may have a hefty annual fee. And there’s no point in paying an annual fee on a card you don’t use.
If this happens, try calling the issuer and asking about downgrading the card. This means exchanging it for a card in the same line with no annual fee. Often, this will give you the same rewards but at different rates.
Credit card companies would always rather keep you as a customer (especially if you have been a good customer and paid your bills on time) than lose you, so most will do this without any problems. Alternatively, you may be able to politely ask and get the fee waived for the year – this may not work, but it doesn’t hurt to ask.
If the card doesn’t have an annual fee and you’re not using it anymore, it’s still not a good idea to just cancel it (unless you’re tempted to overspend). Instead, just keep it. Keep the physical card in a safe place and check it from time to time by logging into your account. You’ll need to use the card occasionally (perhaps every six months to a year) to keep the account active, but that doesn’t have to be a big problem.
I have a card that I don’t really use anymore, and I heard from the issuer that they were going to cancel my account for inactivity. Since I wanted to keep the card and its credit limit (more on that below), I used it to buy wine a few weeks ago. Then I paid the fee, and the card remains active – to the benefit of my finances.
An unused credit card can be good for your credit score
There are two reasons why continuing to use an unused credit card can have a positive impact on your credit score, which is a crucial part of your financial situation.
Credit History
If you’ve had the card for a while, it will boost your credit score because you’ll have a longer credit history. Length of credit history makes up 15% of your FICO® Score, and when lenders look at your credit, they want to see that you’ve successfully managed credit over a long period of time. If you’ve used and paid off the card for many years, there may be that tangible benefit to keeping it.
Credit limit
Your credit utilization ratio makes up 30% of your FICO® Score – that’s the amount you use versus the amount you have available to use. If you have a $10,000 credit limit on three cards but have balances totaling $2,500, you have a 25% credit utilization ratio. It’s good to keep that number under 30%, so the old credit card will help you increase your total available credit limit and lower your credit utilization ratio.
Don’t be so quick to cancel a credit card you no longer want. Instead, see if you can downgrade to a card with no annual fee and use it only occasionally to keep the account active. The benefits to your credit score (and your finances) are unbeatable.
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