Credit cards are a convenient way to make purchases and build credit history. However, with the rise of digital wallets and other payment methods, many people find themselves with unused credit cards in their wallets. Some might wonder if it's bad to close a credit card that they don't 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 the issuer to stop any further transactions on that card. This includes both physical and virtual cards. Closing a credit card can have several implications, including:
- Losing Rewards: Many credit cards offer rewards programs, such as cash back, points, or miles. If you close a card that has a significant reward program, you may lose out on the accumulated points or benefits.
- Affecting Credit Score: Closing a credit card can affect your credit score. Each time a credit account is closed, it results in a minor negative impact on your credit score. However, this impact is usually temporary and will disappear from your report within a few months.
- Potential Fees: Some issuers charge fees for closing a credit card, either immediately upon request or after a certain period. These fees can range from $5 to $30 or more, depending on the card issuer.
Now, let's discuss the reasons why someone might consider closing an unused credit card:
- Security Concerns: With the increasing number of data breaches and identity theft incidents, some individuals prefer to minimize the number of cards they carry to reduce the risk of fraud.
- Clutter and Organization: Carrying multiple credit cards can lead to clutter and confusion. By closing unused cards, you can simplify your wallet and focus on just the essential cards you need.
- Maintaining a Lower Balance: If you have an unused credit card with a high balance, closing it can help you maintain a lower overall credit utilization ratio, which is a key factor in determining your credit score.
However, there are also valid reasons to keep an unused credit card:
- Emergency Fund: Keeping a small amount of money available on a credit card can be useful in case of unexpected expenses or emergencies.
- Insurance Benefits: Some credit cards offer travel insurance, purchase protection, or extended warranty coverage. If you value these benefits, keeping the card active might be beneficial.
- Building Credit History: Even if you don't use the card frequently, it can still contribute to your credit history and help you establish a credit profile.
When deciding whether to close an unused credit card, consider the following factors:
- Frequency of Use: If you rarely use the card, it might be better to close it to avoid unnecessary fees and potential security risks.
- Rewards Programs: If the card offers valuable rewards, you might want to weigh the benefits against the potential costs of maintaining the card.
- Credit Score Impact: While closing a card can temporarily lower your credit score, it typically has a minimal impact and will recover within a few months.
- Financial Management: Closing a card can simplify your financial management and reduce the risk of overspending or accumulating debt.
To close an unused credit card, follow these steps:
- Contact the Issuer: Call your credit card issuer's customer service number or log in to your online account to request the closure of the card.
- Confirm Details: Provide the necessary information to verify your identity and confirm the closure of the card.
- Cancel Automatic Payments: If the card is linked to automatic payments, ensure that these are updated or cancelled before the card is closed.
- Check for Fees: Be aware of any fees associated with closing the card and ensure you understand the terms and conditions.
- Monitor Your Credit Report: After closing the card, monitor your credit reports regularly to ensure that the change is reflected accurately.
In conclusion, whether it's bad to close an unused credit card depends on various factors. If you find yourself with a card that you rarely use and don't derive significant benefits from, it might be wise to consider closing it. However, if the card offers rewards, insurance benefits, or serves as an emergency fund, keeping it open might be more beneficial. Always evaluate your needs and priorities before making a decision to close a credit card.