Credit cards have become an essential financial tool for many people, offering convenience, rewards, and the ability to build credit. However, it’s not uncommon for individuals to have credit cards they no longer use. Whether it’s a card that fell out of favor or one obtained for a specific purpose that has since been fulfilled, it’s important to understand what happens with credit cards you don’t use and the potential impact on your financial standing.
What might happen when you don’t use your card
One possibility when it comes to unused credit cards is that the issuer may choose to close the account. This can happen for various reasons, including inactivity and changes in the credit card company’s policies. However, it’s important to note that a closed credit card can hurt your credit, especially if it was one of your oldest or had a high credit limit.
Credit history length and utilization are key factors in determining your credit score. When a credit card is closed, it may shorten the average age of your credit history, which can negatively impact your score. Additionally, closing a credit card reduces your available credit, potentially increasing your credit utilization ratio. This ratio compares the amount of credit you’re using to the total credit available to you. A higher utilization ratio can also lower your credit score.
On the other hand, some individuals may cancel an unused credit card themselves for various reasons. One of the primary reasons for canceling an unused credit card is to avoid annual fees. Many credit cards come with an annual fee, and if you’re not benefiting from the card’s features or rewards, it may make sense to close the account to avoid unnecessary costs.
How account closure can impact you
However, it’s crucial to consider the potential impact on your credit before canceling a credit card. As mentioned earlier, closing an account can affect your credit utilization ratio and the average age of your credit history. The impact may be minimal if you have a strong credit history and other active credit cards. But if you have a limited credit history or rely heavily on the card you plan to cancel, weighing the potential consequences is important.
Another reason individuals may choose to cancel an unused credit card is to simplify their financial life. Managing multiple credit cards can become overwhelming, especially if you’re struggling to keep track of payments and due dates. Consolidating your credit cards by closing unused ones can streamline your finances and make it easier to stay on top of your financial responsibilities.
If you decide to cancel an unused credit card, following a few steps is essential to ensure a smooth transition. First, pay off any outstanding balances on the card before closing the account. This will help you avoid any negative consequences or additional fees. Additionally, contact the credit card issuer to formally request the account’s closure. Keep a record of your communication and any confirmation you receive for future reference.
It’s crucial to consider the reasons for canceling an unused credit card and the potential impact on your credit score. Closing an account can affect your credit history length and credit utilization ratio, so weighing the consequences and making an informed decision is important.
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