Credit cards are a convenient way to make purchases and build credit history, but with the rise of digital wallets and contactless payments, many people find themselves with unused credit cards in their wallets. One common question that arises is whether it's bad to close a credit card that you never use. In this article, we will delve into the pros and cons of closing unused credit cards and provide some guidance on how to handle them responsibly.
Firstly, let's understand what closing a credit card entails. When you close a credit card, you are effectively canceling the card and requesting that your account be permanently closed. This means that you will no longer have access to the card and any associated benefits or rewards. Additionally, if you have a balance on the card, you must pay it off before the account can be closed. Closing a credit card may also affect your credit score, depending on your overall credit health and the impact of the closure on your credit utilization ratio.
Now, let's consider the reasons why someone might want to close an unused credit card:
1. Security Concerns: Unused credit cards can pose a security risk if they fall into the wrong hands. If you don't use the card regularly, there's a higher chance that it could be misplaced or stolen, leading to fraudulent charges. By closing the card, you eliminate this potential risk.
2. Credit Score Impact: Closing unused credit cards can improve your credit score by reducing the number of credit accounts you have. A lower number of open accounts can lead to a better credit utilization ratio, which is a factor used by credit scoring models. However, if you have a high balance on the card, closing it could temporarily lower your credit score due to the increase in credit utilization.
3. Financial Management: Keeping unused credit cards can create clutter in your wallet and contribute to unnecessary debt. By closing these cards, you can simplify your financial management and focus on using the cards that offer the most value to you.
On the other hand, there are also some downsides to closing unused credit cards:
1. Missed Rewards: Some credit cards offer sign-up bonuses, cashback, or points for spending a certain amount within a set period. If you close the card before meeting these requirements, you may miss out on the rewards.
2. Credit History Preservation: Each time you apply for a new credit card or loan, the creditor will check your credit history. If you frequently close credit cards, it could appear that you are not managing your credit well, which could negatively impact your future applications.
3. Potential Fees: Some credit card issuers charge fees for closing a card, either immediately upon request or after a certain period. These fees can add up over time if you close multiple cards.
Given these considerations, it's important to weigh the pros and cons before deciding to close an unused credit card. If you decide to close a card, follow these steps:
Step 1: Review Your Cards: Before closing any card, review all your credit cards to ensure you're not missing out on valuable rewards or benefits. Make a list of the cards you plan to close.
Step 2: Check for Fees: Research the terms and conditions of each card to see if there are any fees associated with closing the card. This information is usually available on the issuer's website or in the terms and conditions section of the cardholder agreement.
Step 3: Pay Off Any Balance: Before closing a card, make sure you have paid off any outstanding balances. If you have a balance, you must pay it off in full before the account can be closed.
Step 4: Contact the Issuer: Once you've completed the above steps, contact the credit card issuer to request the closure of the account. You can typically do this by calling the customer service number listed on the back of the card or through the issuer's website.
Step 5: Update Your Records: After the card has been closed, update your records to reflect the change. This includes removing the card from your wallet, updating your budgeting tools, and ensuring that any automatic payments or recurring transactions are updated accordingly.
In conclusion, whether it's bad to close an unused credit card depends on your individual circumstances and goals. If you're confident that you won't need the card again and you're comfortable managing your finances without it, closing the card can be a good decision. However, if you think you might use the card in the future or if you value the rewards or benefits it offers, it might be better to keep it open. Always evaluate your options carefully and consult with a financial advisor if needed.