Does closing a credit card due to inactivity hurt your credit score?

Does Closing an Inactive Credit Card Hurt Your Credit Score?

Maintaining a healthy credit profile is crucial for securing loans, renting an apartment, and even obtaining a cell phone contract. One often overlooked aspect of this process is the importance of keeping credit cards active. While the temptation to close unused accounts might seem appealing, doing so can inadvertently harm your creditworthiness.

The impact of inactivity on your credit score is often underestimated. Credit bureaus assess various factors when determining your creditworthiness, including the length of your credit history, the diversity of your credit accounts, and the amount of debt you carry. Closing an inactive credit card, particularly one that’s been open for a significant period, can negatively impact all these areas.

Imagine your credit history as a detailed report of your financial responsibility. Each open credit card is a data point, showcasing your history of timely payments, responsible borrowing habits, and managing debt. Closing a card, especially one established over several years, shortens the total length of your credit history. This reduction can weigh on your credit score, as a longer history generally signals greater financial stability and reliability.

Furthermore, closing a credit card reduces the overall diversity of your credit accounts. A diverse credit mix (including various types of accounts like credit cards, loans, and installment accounts) strengthens your credit profile. Removing an account weakens this mix, potentially leading to a lower score.

In addition to affecting the length and diversity of your credit history, closing a card might also trigger a reduction in your available credit limit. While this might seem insignificant, a lower credit limit can also contribute to a lower credit score. Lenders often use your available credit limit as an indicator of your borrowing capacity.

The myth that closing a card doesn’t matter unless it’s used frequently is misleading. Even minimal usage, like making a small, regular purchase, is sufficient to maintain the account’s activity and positive impact on your credit report. Making a single payment each billing cycle, regardless of the amount, can be enough to maintain the account’s activity and avoid closure.

The key takeaway is that keeping your credit cards active is vital for maintaining a strong credit profile. Regular, even minimal use of your credit cards, contributes significantly to a positive credit history. Avoid the temptation to close inactive cards; instead, maintain open credit lines to foster a strong and diverse credit history. While it might seem harmless to close a card you’re not actively using, the potential for damage to your creditworthiness warrants a more proactive approach to preserving your credit health.