Cancel or Keep Unused Credit Cards?

As many people have decided to only use one or two credit cards, one of the main questions asked is, "Should I cancel the cards that go unused?" While the answer is different for everyone, knowing whether or not to cancel a card should not be a difficult choice once you know how the account closure will affect for credit scores.

So what is affected most when it comes to an account closure and your credit score? For the most part canceling your card alters your utilization ratio (balance-to-limit ratio). When this happens it looks as though your borrowing much more when it comes to your credit limit, which could affect your score more than any other changes. In addition to your balance-to-limit ratio, if you are closing your longest standing account your payment history would essentially be shortened. While this may not effect your as much as the utilization ratio your score has a very high likely of falling a few points.

If you do decide to cancel any accounts, there are a couple of things that could help ensure that your credit score doesn’t take as hard of a hit. They include:
 

• Spreading out closures over time
• Keeping your oldest account open
• Keeping the cards with highest credit limits
   

When it comes to keeping cards that are going unused one of the major concerns that cardholders could see in the future is a fee for not using the card. While there is currently only one major issuer utilizing the fee at the moment, an inactivity fee for not using cards within a specific time frame is something to think about. Discussed a little more in a previous post entitled, "Credit Card Inactivity Fee…..Lost But Not Forgotten", many experts see the possibility of this fee being used by other issuers relatively soon.