Debunking credit card myths: Does canceling a card I don’t use help my credit score?

Editor’s note: This is a recurring post, regularly updated with new information.

It’s no surprise that travel rewards credit cards get quite a bit of coverage here at TPG.

Taking advantage of top sign-up bonuses and strategically using your cards for everyday purchases can unlock fantastic redemptions such as premium cabin flights and luxurious hotel rooms. However, there are a number of misconceptions out there when it comes to credit cards.

Today, I’ll debunk a notable myth around cards you no longer use — which can hopefully help you avoid a credit score drop.

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Myth: Closing a card I don’t use will help my credit score

There are many reasons why you might have a credit card that you simply don’t use anymore.

It may have been the very first one you opened as an adult that has since been replaced with a more valuable card. Maybe your priorities have shifted and a certain card no longer fits into your strategy. Or maybe you've accepted a new job or relocated to a new area of the country and find that your go-to card has less utility.

In these cases, you may think that you should cancel an unused card just sitting in your wallet (or sock drawer) to help your credit score, but in reality, you may find the exact opposite to be true. Canceling a card can actually drop your credit score.

For this myth, it’s essential to understand the different factors that contribute to your FICO score, the one most frequently used to determine your creditworthiness for any new line of credit:

• Payment history
• Amounts owed
• Length of credit history
• New credit
• Types of credit used

However, not all factors are created equal, and these five are weighted based on how important they are to your score:

When it comes to closing a card you no longer use, there’s one primary factor that can impact your score in a negative way: amounts owed.

Related: How to check your credit score

Amounts owed

The second most important factor in your FICO score is the amounts owed, commonly referred to as your credit utilization rate. This looks at how much of your credit you are actually using and is typically expressed as a percentage. Here’s the calculation:

Total balance on your account(s) ÷ Total limit of account(s) = Utilization

Keeping this number low shows issuers that you can effectively manage your credit lines and aren’t at risk of overextending yourself.

An example

Let’s say that you typically spend about $2,000 per month on your primary credit card with a $10,000 limit, and you currently have another unused card, also with a $10,000 limit. You thus have a utilization rate of 10% ($2,000 / $20,000).

However, if you then cancel that unused card, the monthly spending is now spread across a much lower credit line. By canceling the card, your utilization jumps to 20%. That number isn’t too concerning, but anything that impacts your score shouldn’t be taken lightly.

Related: How canceling a credit card impacts your FICO score

Of course, that’s not to say that you shouldn’t ever cancel a credit card. If you’re no longer using a card that carries an annual fee, it may not make sense to keep that card open, unless the benefits you’re getting outweigh the fee. Just be sure to call the issuer and inquire about a retention bonus. The agent may even be willing to waive the annual fee.

Length of credit history

While the amounts owed are the primary factor that will be impacted by canceling a card you no longer use, it can also impact your credit history, which makes up 15% of your credit score.

If the unused card is your longest-tenured account, canceling it can negatively affect the average age of your accounts. However, this doesn't happen right away, as closed accounts (in good standing) will typically stay on your credit report for up to 10 years. Nevertheless, canceling a card with no annual fee — especially one you've had for years — can ultimately impact your score.

This is a key reason why I always recommend opening and keeping at least one card with no annual fee. Just be sure to make a least a few purchases a year on the card to prevent the issuer from canceling it due to inactivity. This can also help prevent your points and miles from expiring.

Related: Making these decisions early on helped me build a lasting credit score while earning points and miles

For some additional tips on how to successfully manage your credit cards, be sure to check out TPG’s 10 commandments of credit card rewards.

Bottom line

There are many myths about credit cards out there, and one common misconception is that you should cancel a card that you don’t use anymore to boost your credit score.

In reality, this can have a significant negative impact on your credit score, as it will lower your overall credit limit and thus increase your utilization rate. Over time, this could (potentially) decrease your average age of accounts as well. While there may be legitimate reasons to cancel a card, don’t do it without first considering how it will affect your credit score.

Additional reporting by Benét J. Wilson.