Should I close unused credit cards?

Should you cancel unused credit cards?

It's common to end up with more credit cards than you actually use. Perhaps an attractive 0% interest deal has come to an end or a rewards card no longer offers such great cashback (and has upped its fee). Maybe you’ve changed your habits and increasingly use a debit card for your everyday spend.

Whether you should now cancel or close those old credit cards depends on your circumstances and how disciplined you are.

Keep them open and it could help you boost your credit rating. But if you think you might be tempted to overspend, then closing them down could be a better option.

The pros and cons of having several credit cards

Having lots of different credit cards can be a help to your finances if you handle them well. But they can be a hindrance if you start to struggle to repay what you owe. Here’s what you need to know:

Advantages

• Helps build a longer, stronger and more diverse credit history – multiple cards can help you build a broader credit history and boost your creditworthiness

• Shows you’re a trustworthy borrower – looking after your cards responsibly and never missing payments proves to lenders you can manage multiple accounts. This could help with future credit applications

• Gives access to different rewards and perks – cards might offer a variety of benefits such as 0% interest deals, cashback, air miles, and points

• Lowers your credit utilisation – the proportion of your total credit limit you're using. If you have multiple cards with a high combined credit limit but are only using a small chunk of that limit, it indicates to lenders that you're a responsible borrower

• Can be handy for emergencies – if one card is lost or stolen, having another card gives you a backup. This can be particularly useful when travelling, for example.

Disadvantages

• It can be easier to spend more than you can afford – with multiple cards at your disposal, you could find it tempting to rack up more debt than usual, which could become difficult to repay

• Tracking your accounts becomes complicated – juggling several cards means keeping track of various payments and terms. Missing a payment can lead to charges and hurt your credit score

• There’s a bigger risk of theft or fraud – more cards mean more opportunities for your details to be stolen. This could then lead to fraudulent spending

• It could be more difficult to apply for credit – having several credit cards can make some lenders wary. It could be interpreted as you being over-reliant on credit.

How many credit cards is too many?

There’s no hard-and-fast rule that says how many credit cards you should or shouldn’t have. But it’s worth remembering that:

• The more cards you have, the trickier it can be to stay on top of your spending – you'll have different payments, due dates, debt balances and interest rates

• If you build up too much debt, it could affect your credit score. And if what you owe becomes unmanageable, it could turn into a source of stress.

Do unused credit cards affect your credit score?

Yes, unused credit cards can affect your credit score. But whether they give it a boost or a blow will depend on how you look after them.

They can work in your favour and potentially improve your score by:

• Lowering your credit utilisation ratio (although this can depend on the lenders' scoring methods and how much credit you’ve had historically)

• Increasing the average age of your credit accounts (older accounts can suggest greater experience of looking after debt)

But having several unused cards could work against you if lenders instead see potential for you to accumulate debt.

Does closing a credit card lower your credit score?

Closing a credit card could potentially lower your credit score.

• Getting rid of a card will push up your credit utilisation rate. If you end up using more than 25-30% of your available credit, this could raise a red flag with lenders

• Older credit card accounts can contribute positively to your credit history. By shutting down a long-standing card, it can shorten your average account age

• Lenders also like to see a mix of credit types to show responsible debt management. Reducing the number (and type) of cards could have an impact.

If you do decide to cancel a credit card, it may make more sense to close a more recent card rather than an old one.

This is because the older the credit card, the greater the impression on your credit rating. Cancel it and you could deprive lenders of what they find useful – your valuable experience of looking after debt.

When should I cancel unused credit cards?

There are a few scenarios where it can make financial sense to cancel a credit card you’re not using. These include when:

• You’re paying an annual fee – these fees can be expensive and may apply whether you use the card or not

• You’ve experienced problems with debt – if you’ve got access to funds, you may find it tempting to dip in and could end up spiralling into more debt

• The card has a high interest rate – if you starting using the card again and don’t clear the balance in full each month, costs can soon mount up.

When shouldn’t I cancel unused credit cards?

There are a few circumstances where you might find you’re better off keeping your old credit card. These include when:

• It’s your only credit card

• It's the oldest credit card you have

• It keeps your credit utilisation ratio low (you’re using less of your available credit)

• You’re looking to apply for a mortgage and need to keep your credit score healthy.

How do I cancel unused credit cards?

If you've decided to cancel your credit card, here's what you need to do:

1. Pay off your balance – first make sure the card doesn’t have a balance. If there is one and you can’t clear it straight away, think about moving it over to a 0% balance transfer card

2. Redeem any rewards – use up any points, cashback, or rewards you’ve built up. Once the account is closed, you might lose these benefits

3. Contact your provider – let it know you want to close the account. This can usually be done by phone or through your online banking. Check the website for specific instructions

4. Confirm the account is closed – confirmation may be sent to you automatically by your lender. Having a record of this can help if there are any errors on your credit file down the line

5. Keep an eye on your credit report – the card closure can take a few months to reflect on your credit report. You can check this for free through Equifax, Experian, and TransUnion.