Should I Cancel My Credit Card If I’m Not Using It?

Many people ask me if they should cancel a credit card they are not using. My response is almost always “absolutely not!”  For one, having several credit cards can actually help your credit score. One of the measurements that credit reporting agencies use to calculate your score is credit utilization ratio, which is the balances on your cards divided by your total credit. By canceling a card, you reduce your total available credit thereby possibly reducing your score. The credit agencies will calculate your credit utilization score in two parts, first running each credit card individually, and then calculating an overall score. Therefore it is important that you not only have a low balance on each card, but you also have low overall credit utilization across all cards to maintain a high credit score.

Now that we have that out of the way, I want to emphasize that you should always call the credit card issuer to cancel a card (it is also possible to cancel a card in writing). Usually the bank will offer you a bonus or statement credit in order to win your business and keep you as a customer. In fact, some of these bonuses can be quite lucrative. Last year I was approved for the AA Platinum Visa, which included a 75,000 mile sign-up bonus. After 7 months, I decided the card wasn’t for me and called Citi to cancel it. After a short conversation with retentions, they offered to credit me the $85 annual fee and give me a 750 mile bonus for every month that I spent at least $750 on my card. This was a very generous offer and a complete no-brainer to keep my account open for free and have the opportunity to earn 2x miles per dollar on my card. I don’t know exactly how Citi determines these bonus offers, but it seems like if you haven’t used your card in a while they will usually offer you a more lucrative bonus because they think you have transferred your business elsewhere. In any case it pays off to spend 5-10 min talking to an agent to see if they will offer you a generous bonus just to keep your account open.

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