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

Keep or Cancel: The Dilemma of Unused Credit Cards

In the realm of personal finance, the topic of unused credit cards sparks a debate. Should you cancel them or keep them active? While the answer may seem simple, there are nuanced factors to consider.

The Case for Keeping Unused Credit Cards

Contrary to popular belief, maintaining unused credit cards can positively impact your credit score. By keeping these accounts open, you can improve your credit utilization ratio. This ratio measures the amount of credit you’re using relative to your total available credit. A lower utilization ratio signals to lenders that you’re not overextending yourself financially.

Closing unused accounts can have the opposite effect, potentially increasing your credit utilization ratio. This is because your total available credit decreases, while the amount of credit you’re using (even if it’s just a small balance) remains the same.

The Case for Canceling Unused Credit Cards

The main argument for canceling unused credit cards is the reduced risk of fraud and identity theft. By closing unnecessary accounts, you minimize the potential for unauthorized access to your sensitive information. Additionally, it can simplify your finances and eliminate the need to track multiple credit card statements.

Weighing the Pros and Cons

The decision of whether to cancel or keep unused credit cards depends on your individual circumstances. Consider the following factors:

• Credit history: If you have a short credit history, keeping unused credit cards can help you build your score.
• Credit utilization ratio: If closing unused accounts would significantly increase your utilization ratio, it may be better to keep them open.
• Risk of fraud: If you’re concerned about identity theft or unauthorized access, canceling unused cards can provide peace of mind.
• Convenience: If you value the simplicity of managing fewer credit cards, closing unused ones may be a logical move.

Best Practices

If you decide to keep unused credit cards, follow these best practices:

• Set up automatic payments to avoid missed due dates.
• Use the cards occasionally for small purchases to keep them active.
• Monitor your credit reports regularly for any suspicious activity.

If you choose to cancel unused cards, do so responsibly:

• Pay off any outstanding balances before closing the accounts.
• Notify the credit card companies of your intent to cancel.
• Shred any credit cards you receive to prevent unauthorized use.

Conclusion

The decision of whether to cancel or keep unused credit cards is a personal one. By weighing the potential benefits and risks, you can make an informed choice that aligns with your financial goals and risk tolerance. Remember, the key is to manage your credit responsibly and protect your financial well-being.