Canceling a credit card that you rarely use or have paid off can feel good. It can give you a sense of accomplishment while lightening your wallet and giving you one less bill to worry about. It can, however, also cause your credit score to drop. But if you want to maintain your current credit score or improve it, then you may want to hold onto that card a little longer.
Closing the account doesn’t remove it from your credit report. Your payment history and credit history length will stay on there for 10 years. It will, however, affect your credit utilization, which is the percentage of the available credit used. The lower your credit utilization, the more it will increase your credit score. About 30 percent of a credit score comes from the credit utilization ratio.
By canceling a card, you’ll have less available credit to spend. Instead, you can improve your credit utilization ratio by paying off most of your credit card balance and then using your credit card less. There are also other options.
In addition to using your card less or not at all, you can call your credit card company and ask them to waive the annual fee. The company’s retention department is likely interested in keeping you as a customer instead of canceling your card because it’s cheaper than trying to acquire new customers. They may also offer you other incentives, such as bonus points.
Another option is to switch to a no-annual-fee card. You’ll have the same credit limit and account number, and the account’s age won’t change on your credit report. Along with no longer paying an annual fee, you’ll likely lose the rewards points program that annual fee cards usually offer, which is fine if you’re not going to use the card anyway.
If you decide to leave your card open, but leave it at home unused, you’ll want to keep it active so that the credit card company doesn’t cancel it automatically. Put a recurring charge such as a subscription on it, along with an auto payment, so that it stays active.