In today's digital age, credit cards have become an integral part of our lives. They offer a convenient way to make purchases, earn rewards, and even build credit history. However, with the rise of online shopping and the ease of carrying multiple cards, it's not uncommon for individuals to accumulate unused or rarely used credit cards. One such question that often arises is whether one should cancel a credit card they no longer use. This article will delve into the pros and cons of canceling a credit card and provide insights on how to make an informed decision.
The first step in deciding whether to cancel a credit card is to assess its usage. If you haven't used the card in a long time, there's a good chance it's safe to cancel. Keep in mind that some cards come with annual fees, so if you're not using the card enough to justify the fee, it might be worth considering cancellation. Additionally, if you have a card that you only use for a specific purpose, like a travel card or a retailer-specific card, and you don't plan on making any more purchases through that company, it might be wise to cancel the card.
On the other hand, there are several reasons why you might want to keep your unused credit cards:
- Emergency Fund: In case of unexpected expenses or emergencies, having a credit card can be beneficial. It provides a safety net and can help you avoid high-interest loans or overdraft fees.
- Rewards Programs: Some credit cards offer lucrative rewards programs, which can be valuable if you frequently use the card for purchases. Cancelling a card that offers these benefits could result in losing out on potential points or cash back.
- Credit History: Even if you don't use the card frequently, keeping it open can help build your credit history. Lenders look at your credit history when evaluating your creditworthiness, and having multiple active credit cards can be beneficial.
- Security Benefits: Credit cards offer fraud protection and zero liability policies, which can protect you from unauthorized charges. Cancelling a card means losing this protection.
When considering canceling a credit card, it's essential to weigh the pros and cons carefully. Here are some steps to follow:
- Review Your Cards: Go through all your credit cards and evaluate their usage patterns. Identify cards that you haven't used in a while or that you don't plan to use again.
- Consider Fees: Check the terms and conditions of each card to see if there are any annual fees or penalties for closing the account. If the fees outweigh the benefits, it might be worth canceling the card.
- Evaluate Rewards: If you have cards with rewards programs, consider how often you use them and how much value you get from the rewards. If the rewards are minimal compared to the fees, it might be better to cancel the card.
- Check Credit Score: Before canceling any cards, check your credit score to ensure that it doesn't take a hit due to the closure of the account. Some banks may report the closure as a negative event, which can lower your score temporarily.
- Contact Your Bank: Once you've made your decision, contact your bank or credit card issuer to request the cancellation of the card. Follow their instructions carefully to ensure a smooth process.
In conclusion, whether or not to cancel a credit card depends on various factors, including your usage patterns, fees, rewards, and credit history. By carefully evaluating these factors, you can make an informed decision about whether to cancel a card or keep it. Remember that maintaining a diverse portfolio of credit cards can also be beneficial for building credit history and securing future financial opportunities.