Don’t automatically close unused credit card accounts
Posted in: Credit Cards, Credit Monitoring
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With so many changes taking place with credit card companies and individual credit cards these days, you may feel compelled to close unused credit card accounts. Not so fast.
Consider all angles when deciding whether to keep an old credit card account open or not. In some cases, there can be certain benefits to keeping an old account open even if you aren’t using the card anymore.
The main benefit of keeping a seldom-used credit card account open usually comes in the form of unused available credit. A portion of each consumer’s credit score is calculated using a formula that takes into account the portion of the consumer’s total available credit that he/she is using at any given time.
So, for example, if you close an old account with a $5,000 limit, you would be losing $5,000 of unused available credit that could potentially reflect positively on your credit score. In this scenario, your ratio of used vs. unused credit would be affected by $5,000. That may or may not be a significant amount, depending on your total available credit across all accounts.
Some credit card companies, however, have thrown (or plan to throw) an extra wrinkle into the mix in the form of inactivity fees. An inactivity fee would be triggered if a cardholder hasn’t used his or her card in a specified period of time. This type of fee would obviously has the potential to affect consumers who are leaving old credit card accounts open for possible credit score benefits.
In the end, it’s best to look at all of the possible ways that you may be affected before closing an old credit card account. It may be tempting to close an account with all of the changes taking place these days, but take a look at the big picture before making any rash decisions.
See also: Should I keep old credit cards or cancel them?
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