Is it better to cancel unused credit cards or keep them in Canada?

The Pros and Cons of Cancelling Unused Credit Cards in Canada

When it comes to unused credit cards, the question of whether to cancel or keep them lingers. While both options have their merits, understanding the potential consequences is crucial before making a decision.

Benefits of Keeping Unused Credit Cards:

• Boosting Credit Score: A long-standing credit card account can significantly enhance your credit score. The established history demonstrates responsible credit use, positively impacting your creditworthiness. This is considered a more significant factor than the potential inconvenience of maintaining an unused card.

Considerations for Cancelling Unused Credit Cards:

• Potential for Credit Score Drop: Cancelling a credit card can shorten your credit history and potentially lower your credit score. A shorter credit history can make it more difficult to qualify for future credit products.

• Increased Credit Utilization Ratio: If you cancel an unused card with a balance, your credit utilization ratio (the percentage of your total available credit being used) may increase. A high credit utilization ratio can negatively affect your credit score.

• Inactivity Fees: Some credit card issuers charge an inactivity fee if a card is not used within a certain period. This can add unnecessary expenses to your budget.

Factors to Consider:

• Age of the Card: The older the credit card, the more it contributes to your credit history. Cancelling a card with a long history can have a greater negative impact on your score.

• Balance: If you carry a balance on the unused card, cancelling it can hurt your credit utilization ratio. It’s advisable to pay off the balance before closing the account.

• Specific Card Features: Some credit cards offer valuable rewards or perks that you may wish to maintain, even if you don’t plan on using the card regularly.

Recommendation:

In general, it’s recommended to keep unused credit cards with long histories to preserve your credit score. If you must cancel a card, prioritize those with shorter histories and no outstanding balances. Additionally, consider reaching out to the credit card issuer to request a reduction or waiver of any inactivity fees.

By considering the potential consequences and making informed decisions, you can effectively manage your unused credit cards and maintain a strong credit profile.