When a credit card sits dormant, it might feel like dead weight. But should you be the one to cut the cord—or let the issuer do it for you?
A Question Many of Us Face: Should I Cancel My Inactive Credit Card?
That was the dilemma Shan recently brought to our attention:
“My credit card company plans to cancel my account due to inactivity. Should I just cancel it myself?”
It’s a smart question—and one that deserves more than a quick yes or no. At first glance, closing an unused credit card may seem harmless or even responsible. But the truth is, doing so can quietly chip away at your credit score if you’re not careful.
So, what’s the best move when your card’s collecting dust? Let’s break it down.
Thinking of canceling your credit card? Learn how it can negatively impact your credit score. (img src: DALL-E)
Why Canceling a Credit Card Could Hurt Your Credit Score
One of the lesser-known truths about credit scores is how heavily they rely on something called credit utilization—or how much of your available credit you’re actually using.
Here’s why it matters:
Your credit utilization ratio is calculated by dividing your total credit card balances by your total credit limits. The lower the ratio, the better it is for your score. Experts recommend keeping it under 30%, but under 10% is ideal.
So, let’s say you have three credit cards with a total limit of $10,000, and you carry a balance of $2,000 across them. That’s a 20% utilization rate—pretty solid.
But if you cancel one card with a $3,000 limit, your available credit drops to $7,000. Now your utilization jumps from 20% to 28.5%, even though your spending hasn’t changed. That could knock points off your score.
Moral of the story? Keeping that “inactive” card open might actually be helping you more than you think.
When It Does Make Sense to Close a Card
Of course, there are exceptions. Some cards come with hefty annual fees or sky-high interest rates. If you're not using the card and it's costing you money, it might be better to cut ties—just be sure to do it the right way.
Here’s how to protect your credit when canceling:
- Pay off the full balance first. Never cancel a card with an unpaid balance—it can hurt your score and haunt your credit report.
- Call the issuer and request closure “in good standing.” That phrase matters. It ensures your account is marked as closed without delinquencies, which stays on your credit report for up to 10 years—and that’s a good thing.
- Ask for a written confirmation. That way, if there's ever a dispute, you have proof of the closure terms.
Still unsure? Consider downgrading to a no-fee version of the card if the issuer offers one. That way, you preserve your credit line without paying for perks you no longer use.
A Better Strategy: Keep It, But Use It Strategically
Rather than closing the card or waiting for the issuer to shut it down, there’s a middle ground that keeps your credit healthy and your score intact.
Use the card occasionally—just enough to keep it active. Maybe you put your monthly Netflix or Spotify subscription on it, and set up autopay to avoid interest. This minimal use shows the card is still in rotation, which may stop the issuer from canceling it.
It's also a good way to keep your credit history looking robust, especially if it’s an older account. Remember, the length of your credit history plays a role in your credit score as well. So that old card you've had since college? It could be doing more for your credit than you think.
Final Thoughts—and a Smart Next Step
So, should you cancel your unused credit card? Probably not—unless it’s costing you more than it’s worth.
Think of it like a gym membership you never use. If it’s free and not doing harm, why cancel? But if you’re paying monthly and seeing no benefit, it may be time to move on.
Either way, the key is making informed decisions—not emotional ones. If you’re ever in doubt about your next financial move, resources like AnnualCreditReport.com and certified credit counselors can offer guidance tailored to your situation.
