Many of us have simply outgrown some credit cards we once applied for and utilized in the past. Perhaps you signed up for a promotion in a store where you received 0% interest on a big-ticket item if you paid with their credit card. Others have changed ecosystems, leaving one company/bank to build a credit relationship with another. While many credit card experts will tell you unless the card in question has an annual fee, you should keep it open, that answer doesn’t fit all scenarios.
If you have opened a card within the last 12 months, and realize the card no longer fits your needs, closing it will have little impact to your FICO score. You have to keep an eye on your credit utilization, which is determined by dividing the total available credit you have by the total balances owed. If you carry credit card debt, take into consideration that closing any cards with a zero balance will drop your utilization until you the equivalent of that credit limit off on other cards.
Credit utilization accounts for 30% of your FICO score, with many lenders looking to see potential borrowers have no more than 30% of your available credit leveraged at any given time. If you have a card you are thinking of closing, and that card has an annual fee attached to it, it could make sense to close that card and take the temporary hit on your credit score. The average credit card annual fee is $147, according to a recent report issued by Value Penguin. That simple equation means if you are paying $147 or more on an existing card, you need to see at a minimum 2x that value from that card to justify keeping it open and paying the fee again.
Another viable reason you should close unused credit cards is if you honestly do not trust yourself with the credit in the first place. There are some consumers who go through a vicious cycle of struggling to pay off their credit card debt just to turn right back around and overspend again. If you find yourself in that situation, with hopes of getting out of debt for good, consolidating your revolving credit is more of a personal decision than playing the game of maximizing a credit score.
At the end of the day, keeping credit card accounts open for long periods of time benefit your credit score and future options with lenders. If a bank sees you opening and closing accounts in a very short period of time (credit card churning), that could impact future decisions that are made by issuers to you if you look to get credit extended. Review how long you have owned a credit card, along with the terms and conditions of your credit agreement, and finally whether or not the perks you receive from the card outweigh any costs (annual fee) associated with it before closing it as well.
You can review your credit report for free via AnnualCreditReport.com.