Credit cards are a convenient way to make purchases and build credit, but with the plethora of options available, it's easy to accumulate unused cards. One such card might be one you never use or have forgotten about. Should you close a credit card you never use? This question has been debated for years, and the answer isn't always straightforward. In this article, we will delve into the pros and cons of closing a credit card you never use, helping you make an informed decision based on your financial goals and needs.
Firstly, let's understand why someone might have a credit card they never use. It could be due to a one-time promotional offer that expired, a card given as a gift that doesn't meet their current needs, or simply forgetfulness. Whatever the reason, if the card is not being used, it's important to consider whether it's contributing positively to your financial health.
On the positive side, having multiple unused credit cards can lead to higher credit utilization ratios, which can negatively impact your credit score. A high utilization ratio indicates that you are using a large portion of your available credit, which can signal to lenders that you may be overextended and at risk of defaulting on debt. By closing unused cards, you can reduce your overall credit utilization and potentially improve your credit score.
However, there are also downsides to closing unused credit cards. The first is the potential impact on your credit history. Each time you apply for a new credit card or loan, the lender checks your credit report, and closing a card can result in a minor negative entry on your report. While this entry won't significantly affect your score, it can add up over time and potentially lower your score if you have many such entries.
Another concern is the possibility of missing out on rewards programs. Many credit cards offer sign-up bonuses, cashback offers, or points that can be redeemed for travel, merchandise, or other benefits. If you close a card without fully understanding its terms, you might miss out on these perks. Additionally, some cards have annual fees that can add up over time, so closing a card without considering these costs could result in additional expenses.
Now that we've discussed the potential benefits and drawbacks of closing unused credit cards, let's look at some factors to consider before making a decision:
1. Credit Utilization Ratio: As mentioned earlier, a high credit utilization ratio can negatively impact your credit score. If you have several unused cards, consider closing them to reduce your overall utilization ratio.
2. Credit History: Closing a card can result in a minor negative entry on your credit report. If you have a clean credit history and no plans to apply for new credit soon, this impact should be minimal. However, if you frequently apply for new credit, it might be better to keep the card open to maintain a longer credit history.
3. Rewards Programs: Some credit cards offer lucrative rewards programs that can be beneficial for frequent travelers or big spenders. Before closing a card, check if it has any ongoing rewards or benefits that you might miss out on.
4. Annual Fees: Some credit cards charge annual fees, which can add up over time. If you're confident you won't need the card's features or benefits, consider closing it to save on fees.
5. Financial Goals: Your financial goals should guide your decision. If you're focused on building credit and maintaining a low credit utilization ratio, closing unused cards might be beneficial. However, if you value rewards programs or specific benefits offered by the card, it might be worth keeping it open.
In conclusion, whether or not to close a credit card you never use depends on your individual financial situation and goals. If you're concerned about your credit utilization ratio and want to improve your credit score, closing unused cards can be a good option. However, if you value rewards programs or specific benefits offered by the card, it might be better to keep it open. Always review your financial goals and consider the potential impacts of closing a card before making a decision.