Should you close a credit card you don't use?

Usually not, if the card has no annual fee, because closing it removes its credit limit and can raise your utilization. Close it when the fee costs more than it gives you or the card tempts you into debt, and lower your balances first.

Utilization is the main risk

Your utilization is your card balances divided by your card limits. Closing a card takes its limit out of the math. If you carry balances on other cards, the ratio goes up.

The effect is often small or temporary

The CFPB says the change to your score may be minor or temporary, and the full effect depends on the rest of your credit. Paying balances down shrinks it further.

Closing makes sense in some cases

The CFPB lists a few: the card has an annual fee or poor terms that outweigh its benefits, closing it helps you avoid debt, or you don't plan to apply for credit soon.

Timing matters before a big loan

If you plan to apply for a mortgage or car loan in the next few months, wait. Close the card after the loan closes, when a small dip matters less.

What happens when you close a card

You call the card company, or use its website, and ask to close the account. If you owe a balance, you still owe it. The interest rate and payment terms keep applying until it's paid off.

On your credit report, the account shows as closed. Its credit limit no longer counts toward your available credit. Its payment history stays on the report. Positive history on a closed account can keep showing for years, and late payments stay 7 years from when they happened.

Why your score can drop

The main reason is utilization. Suppose you have $10,000 of total limits and $1,500 of balances. That's 15%. Close a card with a $5,000 limit and the same $1,500 is now spread over $5,000 of limits, or 30%.

If you pay your cards in full and your other cards report $0 balances, closing one may barely move your score. If you carry balances, the jump can be bigger.

Closing your oldest card can also matter later. Its history keeps counting for a while, but once it eventually drops off your report, your average account age can fall.

When closing is the right call

An annual fee is the most common reason. If you pay $95 a year for a card you rarely use and its perks don't cover the fee, that's $95 a year for a few score points you may not need right now.

Closing also makes sense when a card keeps pulling you into debt you can't pay off, or when you're separating finances after a breakup or divorce and the card is joint. Your money habits matter more than a score dip.

A card with a very high interest rate that you still use is a weaker reason. Paying in full each month means the rate never touches you.

How to close a card the safe way

First, redeem any rewards, since they're often lost when the account closes. Move any automatic bills to another card. Then pay the balance to $0 if you can.

Call the issuer and ask to close the account. Ask whether a no-fee version is available, because switching can keep the account open without the cost. If you go ahead, ask for written confirmation that the account was closed at your request.

Check your credit report a month or two later. It should show the account as closed by the consumer, with a $0 balance once you've paid it.

If the card company closes it for you

Card companies can close accounts, including ones that sit unused for a long time, and they can lower your limit. You'll usually lose any rewards left on the account.

The credit effect is the same as closing it yourself. To keep an old card you value, use it a little every few months and pay the bill in full.